Office market more competitive as new supplies cut rental rates

Average rents have continued to fall in Hanoi Photo: Le Toan

Grade A average asking rents decreased by 3.2 per cent quarter-on-quarter, while Grade B rents recorded a slight decrease of 0.4 per cent quarter-on-quarter. Both Grade A and Grade B buildings in Hanoi are suffering from a decrease in occupancy this quarter, primarily due to the opening of the new EVN office building close to the central business district (CBD).

“Grade A average vacancy rates stood at 23.1 per cent while Grade B buildings reached 34 per cent by the end of the second quarter,” said the CBRE report.

“More affordable and attractive incentives from landlords motivated commercial tenants to move from villa-type offices to professionally- managed office buildings. Delays in construction of several office projects made the overall picture less grim for market performance, however, supply still outweighed demand,” said CBRE Vietnam.

“Moving forward, projects in the west of the city are under further pressure from  rent drops as current and future supply well outstrips demand. Average asking rents are expected to continue on a downward trend while vacancy rates will be on the rise as new supply comes on to the market. Grade A buildings in the city centre will achieve higher occupancy rates as tenants have limited options in this segment. However, older buildings need to future-proof their performance by renovating and upgrading to compete with new entrants,” said William Badger, associate director of the Office Service Division of CBRE Vietnam.

Cushman & Wakefield Vietnam, another consultant also commented that in terms of average asking rents, Hanoi witnessed a slight decline while Ho Chi Minh City showed improvements after a consecutive period of decreases.

Specifically, Hanoi office Grade A buildings for the second quarter recorded an asking rent decrease of 0.7 per cent in comparison with the first quarter. Hanoi office Grade B rentals also decreased by 0.12 per cent quarter-on-quarter due to increasing vacancies.

“In Hanoi, rents continued to slip and with the introduction of the Lotte Centre into the market in the coming quarter, we expect this trend to continue as supply continues to outstrip demand and landlords are becoming more competitive,” commented  Alex Crane, national head of the commercial agency, Cushman & Wakefield in Vietnam.

In contrast, in Ho Chi Minh City, Grade A rents increased by 1 per cent quarter-on-quarter, while Grade B rents remained stable quarter-on-quarter but increased 1 per cent year-on-year.

“Rents across all grades in Ho Chi Minh City generally remained steady and we expect this to continue until the end of the year when the next wave of projects come online,” Crane said.

Total Grade B supply in Hanoi has risen to over 729,000 square metres, while stock for Grade A rentals remained unchanged at around 330,000 square metres.

The total Grade A stock in Ho Chi Minh City remained static at 157,000 square metres, while total supply of Ho Chi Minh City office space has reached 820,700 square metres, marking a nearly 2 per cent increase quarter-on-quarter and a 6 per cent increase year-on-year. In terms of occupancy rates, Cushman & Wakefield said that Hanoi witnessed reversed trends between Grade A and Grade B.

While Grade A saw a climb of 1.33 percentage points quarter-on-quarter to 78.2 per cent, Grade B continued its downward trend with a 4.4 percentage point decrease over the quarter to reach roughly 72.0 per cent. In Ho Chi Minh City, average occupancy rates of both grades stood at around 91 per cent, remaining stable compared to the previous quarter.