Middle ground profits to take root

Lower level developments will generate better profit lines

Hanoi’s office market is abuzz with talk of the impending opening of Landmark 72, Keangnam’s flagship skyscraper project.

But, industry experts claim Grade B projects will see the real action this year.

CBRE head of office services Nathan Cumberlidge said the market this year would be dominated by so-called Grade B projects.

Last year, over 65 per cent of enquiries sent to CBRE were for space of less than 250 square metres and only 10 per cent came from companies requiring more than 1,000sqm.

“The good news for all developers and landlords as this provides future potential as the 250sqm or less clients will most likely expand in five years and 1,000sqm plus clients may follow suit, increasing overall demand for space and helping fulfil supply,” Cumberlidge said.

According to CBRE more than 240,000sqm of Grade B space will come on line this year in Hanoi. Many of these developments benefit from strong locations.

“They also have strong support facilities such as established roads networks, banks, restaurants and coffee houses within walking distance. They may lack the glamour of a Grade A tower, but practicality is a strong selling point,” said Cumberlidge.

“It is unlikely all the developments will be 100 per cent occupied and vacancy rates will increase. In real terms, the take-up will trend positively,” he added.

New Grade B stock in 2011 such as Detech Tower and Han Viet Tower were considered Grade B plus and may see rents remain firm in the face of potential cuts to Grade A rents in the West.

The good news in Hanoi, according to Cumberlidge, was that even though the office sector might see rising vacancies due to increased supply, demand was up.

“With the estimation that more than 50 per cent of Hanoi’s existing local and international companies will double in size over the next five years, Grade A and B plus should perform well with over 200,000sqm moving and expanding,” Cumberlidge said.

Then there is the growing number of new enquiries from customers wanting to enter the market this year and beyond.

At present, Hanoi has a Grade B stock of nearly 393,000sqm, approximately two and a half times the current stock of Grade A - at 165,000sqm.

Given that the current vacancy rate for Grade A property is 9.6 per cent and Grade B is 18.7 per cent, this represents a Grade B occupancy of more than 319,000sqm.

Three new Grade B office projects, Hoang Cau Geleximco, Crown Complex, and TC Tower, were launched in the first quarter. These three projects brought nearly 47,000sqm of new supply to the market.

Average asking rents softened across all grades the first quarter. Grade A asking monthly rents were at approximately $39-$40 per square metre and those for Grade B at $26-$27 per square metre.

CBRE said demand was strong in the first quarter of this year with a total net absorption of 37,800sqm, the highest level of quarterly absorption to date.

Approximately 25,250sqm was taken up in Grade B buildings. Some 12,550sqm was absorbed in Grade A projects, mainly in the western submarket.

This year, over 383,000sqm of new supply will enter the market. Approximately two-thirds of new supply will be in the west of the city.

Last year alone CBRE office services recorded enquiries concerning more than 200,000sqm in Hanoi.