Office hunt a game of cat and mouse

A lack of office space is shutting the door on some firms’ growth ambitions

A recent Jones Lang LaSalle (JLL) research indicated that premium office rentals in the city were between $34-$36. The values are inclusive of service charges of about $6-$7 per square metre per month, but exclusive of VAT. The city is now home to more than seven million people and the figure is expected to reach 10 million by 2020.
According to a CB Richard Ellis research, new office space this year will triple the existing amount to a record 158,798sqm. The total supply for the next four years will be 805,425sqm as a result of 86 buildings under construction mainly in Districts 1 and 3. However, the 350,000sqm of office space in the city is smaller than other major South East Asian cities with Bangkok boasting more than 2.5 million square metres, Manila’s Makati city (2.6 million square metres) and Jakarta (four million square metres).
According to the JLL research, all the major Asian markets are currently in a growth cycle and rentals are expected to continue increasing in the coming years. These values surpass all the other ASEAN markets except Singapore. Vietnam premium-grade office in Ho Chi Minh City and Hanoi is nearly at 100 per cent occupancy. It is predicted that rent for such office space will continue to rise over the next three to five years.
However, JLL anticipates that rental levels will soften after this period due to the injection of new supply, particularly in Ho Chi Minh City.
Furthermore, it notes that in emerging markets such as Vietnam, rentals are prone to extreme price fluctuations versus the more established and mature markets. During the last market high in Vietnam in the mid-1990s, office rentals in Ho Chi Minh City reached $50 per square metres, per month. But, 24 months following the dramatic fallout from the Asian financial crisis, rentals in the city dipped to a range of around $15 per square metre per month.
JLL senior manager Buu Le told Vietnam Investment Review: “Financial institutions are likely to be the main candidates for office demand over the next three years with the financial sectors’ deregulation through WTO accession. We expect this to result in a number of international players increasing their presence in Vietnam. In addition, the expansion of existing multi national corporations and foreign companies and the growing demand from domestic occupiers are the key actors that will drive the office market in the coming years.”
Besides that, many office tenants are moving out of the central business district to more spacious locations with less expense. E-town 2, the second grade A office building invested by REE (Refrigeration Electrical Engineering Corp), has opened with 47,000sqm of space available.
Etown 2’s price, $17 per square metre, and its location near the airport have given the site a big advantage over competitors and 90 per cent of available space is already occupied.
Another Ho Chi Minh City office space trend is for state-owned property to be opened up to quench developers’ thirst for sites. Some Vietnamese state-owned giants, such as EVN, PetroVietnam and Bao Viet, have decided to build their own buildings to relocate or to lease.
The PetroVietnam Tower marketing agent, Property Consultant Colliers, said Petroleum Technical Services Company (PTSC) is planning to make its grand opening due to the completion of the building next month.
Set amongst 5,000sqm, PetroVietnam Tower consists of 18,000sqm of office space and 1,270sqm of prime ground floor retail space which is 100 per cent sold out. The site, at the end of Le Duan, was bought off the Ho Chi Minh City government by PetroVietnam in mid-2002 for its oil and gas management southern head quarters.
The building had been a concrete skeleton for about eight years.
In Ho Chi Minh City’s CBD, there are six premium office buildings under construction or with construction plans for 2007. Currently, Gemadept is under construction and Kumho Asiana Plaza had its groundbreaking ceremony late last year. In July 2006, Bitexco started building what will be the country’s tallest building, the Financial Tower in District 1. It is expected to bring about 70,000sqm of office space to the market by 2010.
Other notable projects include Vietcombank Tower and A&B Tower, which are both expected to commence construction in 2007.
In addition, the Tax Plaza site is also in the process of selecting investment partner to redevelop a mixed-use development with a 60,000sqm office component, a six-star hotel and a 20,000sqm shopping centre.
Once completed, these six premium office buildings will provide the market with the additional 227,000sqm of supply by the end of 2011.