Hanoi’s office glut grows and grows

According to Greg Ohan, national director of office division under CB Richard Ellis Vietnam, the growing glut of office space poses a challenge for developers to rethink and be more proactive in their strategy.

“Developers must be very careful on their development and rental strategy as well,” Ohan said.
During the past five years, Vietnam’s office market has experienced a construction boom, resulting in decreasing rents..

In only five years time, the Hanoi office market transformed from a small, cozy collection of office buildings with limited office availability into a typical emerging office market with numerous office buildings, including stand alone properties or mixed use developments.

In its latest report on office for lease in Hanoi, CBRE stated that in a time span of five years the number of Grade A and B office buildings increased significantly from 36 to 65, which is equal to 80 per cent.

As a result, the availability of Grade A and B office stock increased about 160 per cent.
Due to the addition of office supply, the Grade A and B rental levels in the west, mid town and central business districts (CBD) have been under continuous pressure.

For example, the highest average Grade A asking rent was recorded in the fourth quarter of 2008 was at VND 1.1 million ($55) per square metre per month, which at that time was amongst the highest rents in the South East Asia region.

Nowadays however this rental broadly ranges between VND874,000 and VND479,000 ($42 and $23) per square metre per month, with the latter being a striking 50 per cent lower compared to the 2008 the rental levels.

Rent on Grade B office space, meanwhile, has been a downward trend since the peak in mid 2008 from VND624,600 and VND833,000 ($30 - $40), to VND562,000 to VND375,000 ($27 - $18) per square metre per month. This represents a decline of circa 35 per cent.

Despite this decline, CBRE is of the opinion that the bottom has not been seen yet and that it is likely that the Hanoi rental levels will slightly continue to drop in 2013.

Another inevitable effect of the new office supply is vacancy. Vacancy has been continuously growing since 2009. Although take-up numbers in Hanoi are historically high, it cannot keep up with the pace of new office developments.

Hanoi used to be a landlord market with only 5,000 square metres vacancy, but in five years time this number ballooned to an unbelievable 175,000 square metres, turning it into a typical tenant’s market. CBRE expects that an increase in vacancy in 2013 is inevitable.

Net absorption has also been on a rise. The five-year net average absorption (2008 – 2012) is 66,000 square metres per annum. When looking at the average net absorption of the past two years it amounts to an impressive 100,000 square metres.