Ho Chi Minh City and Hanoi facing large-scale disruption in office for lease

According to Alex Crane, managing director of Cushman & Wakefield (C&W) Vietnam, like many other segments of the real estate market, office for lease has been impacted by the coronavirus.

Office for lease in both Ho Chi Minh City and Hanoi is affected by the COVID-19, but long-term prospects are not all that bleak. Photo: zing.news

Vietnam enters this period with a strong tailwind and growth in the wider economy – and this is reflected in the performance of the office markets in the country.

“Ho Chi Minh City enters into this with historically low vacancy and high rental rates, along with continued demand and limited future supply. Whereas pre-pandemic these factors would accelerate rent increases faster, we are of the belief that this will slow rental increases in the city, but the pandemic will not result in falling rents across the Ho Chi Minh City market," said Crane.

He had further advised caution but does not expect pain in the Hanoi market.

At the end of 2019, C&W reviewed the supply forecast for Hanoi and as a result, felt that headline or asking rents would fall marginally through 2020 by approximately 10-15 per cent across the market.

Of course, this is broadly speaking across the three submarkets in Hanoi, and the underlying performance of each will be very difficult with Hoan Kiem district being the least affected, and the midtown area receiving more rent pressure as a result of new supply.

It is obvious that the COVID-19 outbreak will accelerate this trend as building construction will ultimately continue and as demand slightly reduces.

The net impact of this is that there will be a prolonged period of higher vacancy through 2020 and 2021, likely hovering at around 18 per cent, meaning that some landlords will need to be more competitive with their terms, thus having the effect of pulling down the average rent across the market.

Crane also mentions that Hanoi’s market may provide opportunities following the COVID-19 pandemic.

“With respect to occupiers and multinational companies post-pandemic, we anticipate that Vietnam’s tremendous performance in response to this crisis will encourage greater investment into the country, and we will also see an acceleration of manufacturing and service industries within the country, much of which will be driven by multinational foreign companies. Hanoi, in particular, will be an attractive destination for these businesses, given that it has a central regional location and fast-improving infrastructure to support manufacturing, urbanisation, and exports, which are all potential drivers for higher office demand and equally faster growth,” he added.

He forecast further transactions would be completed within the second quarter of 2020, thus supporting momentum through the COVID-19 period.

“Transactions that are earlier in the process are typically being deferred, and we expect these to speed up again once the position, with regard to COVID-19, is easier to assess. Vietnam remains a market that multinational companies forecast as having a positive future and growth despite COVID-19’s potential impact on GDP,” he added.