Lack of upmarket office space makes HCM City red hot for developers

A grade A office in HCM City. The city’s office market is rife with opportunities for property developers, especially the grade A and B segments which have been labouring under a shortage. - VNS Photo

Several recent reports mention the shortage and affirm that finding grade A or B office space is not easy in the city.

In its first quarter survey, CBRE said: “Looking forward, a healthy performance is expected in the market since annual new supply from 2018 to 2020 will, on average, be more than 26,000sq.m.”

In the first quarter of 2018, there was no new supply in the grade A and B segments, which have 383,000sq.m and 813,300sq.m respectively, the report said.

“In 2018, total new supply will consist of just one decentrialised grade B project, Thaco Building in District 2, with approximately 6,000sq.m for outside leasing.

“The Thaco Building will also be the first grade B office building in the Thu Thiem new urban area.”

Concurring, Jones Lang LaSalle (JLL) Viet Nam said in its Q1 report: “After the opening of Saigon Centre Phase 2 and Deutsches Haus in the second half of 2017 no new grade A building has entered the market.”

“Etown Central started its operation in the same quarter, adding 34,000sq.m of grade B office space to the total stock.

“Net absorption of grade A and B was more than 27,000sq.m. The grade B segment saw major absorption. The overall occupancy rate decreased slightly due to new supply but was still at a high level, showing healthy demand in the market.”

An executive at a company headquartered in a major office building in District 1 told Viet Nam News, “It has been hard.”

He said his company had moved to the current office six months ago and had had a tough time finding grade A or B office space.

“We had found another one and intended to pay the deposit. One day later when we came back, the office had been leased.”

Trang Bui, head of markets, JLL Vietnam, told Viet Nam News: “The shortage will last at least until the end of this year. Next year more supply will be added to the market if these new buildings are completed in time. They have already received inquiries.”

Duong Thuy Dung, senior director, CBRE Vietnam, said: “There is no more grade A or B office space for companies.”

More than a half a month ago they were 95 per cent full, she said, underlining the fact that the office building market is now very lucrative for developers.

“The economic indices are now so positive and many companies want to expand their office while others want to relocate.

“Demand for space above 1,000sq.m is really huge,” she added, revealing that her company receives 30-50 enquiries a month but can fulfil the needs of only two or three.

Stephen Wyatt, country head of JLL, said: “The Thu Thiem new urban area will relieve some of the pressure HCM City currently faces.

“The infrastructure in HCM’s existing central business districts is starting to buckle under the pressure of rapid expansion in the last three decades.

“The undersupply of grade A office stock in the central business districts [CBD] is pushing rents higher, reaching levels not seen since 2008. Traffic congestion has increased over the past five years.

“The master plan for Thu Thiem is set to alleviate the lack of supply faced in the existing CBD. As infrastructure improves within Thu Thiem, we anticipate that larger firms will start considering Thu Thiem as a viable alternative to the existing CBD and set up their head offices there.”

Due to the shortage, rents for grade A and B office space in Q1 increased to about US$39.71 and $22.35 per square metre, according to CBRE.

They are 7.4 per cent and 1.8 per cent higher than a year ago, it added.

In the fist quarter, the tenants were more diverse, being, in addition to traditional sectors like finance and banking, services and manufacturing, also from sectors such as IT, co-working space and e-commerce.

The new tenants are also seeking office space larger than 1,000sq.m.