Pacific Place guarantees rates in bold new sales pitch

High-rise fever: Experts predict rising demand for grade A office space in Hanoi will continue to push rates up

Pacific Place will become the first office project in Vietnam selling long-term leases to second investors, who earn returns on their investment by leasing space to tenants.
Ever Fortune, the Taiwanese owner of the development now under construction in Hanoi’s Ly Thuong Kiet street, said recently it would sell 18,000 square metres (sqm) of office space in the building for the 37-year lifespan of the project to second investors at $2,000 per sqm.
These investors would pay 30 per cent of the contract value before construction of the building finishes in December 2006, and Ever Fortune said it could assist investors in taking out bank loans to pay the remaining 70 per cent.
According to developers, if a second investor purchases 100sqm of office floor and later leases the space at a net rental of $20 sqm per month, this buyer could expect to recoup their entire initial investment capital and repay bank interest within nine years. They could then pocket the revenue for the remaining period as pure profit.
A keystone of Ever Fortune’s sales pitch to second investors is that it will repay investors their entire investment sum plus interest rates it earned after contracts were signed if office rental rates at the time of the handover are lower than current market prices.
This pledge means Ever Fortune expects office rental rates for the highest quality office space, grade A, which includes Pacific Place, to not fall during the next few years.
Ever Fortune general director Shu Shin Hung, responding to a question on whether the company was over-optimistic about a continued rise in Hanoi office rental prices when it marketed such a commitment, said he was confident demand for grade A offices would continue to rise as supply was still limited.
“Vietnam’s expected accession to the World Trade Organisation will create great opportunities for the economy as well as the office leasing market,” Hung said.
“More and more foreign companies will come to do business in Vietnam and they need grade A office space.”
He added he had noticed that many Taiwanese banks were looking for opportunities to enter Vietnam.
Property consultants such as CB Richard Ellis have recently claimed that demand for office space would pick up, not only because foreign companies are coming to Vietnam and expanding operations, but also because more domestic firms want to shift into office buildings.
An example of local demand is the Bank for Investment and Development of Vietnam leasing an entire tower in Vincom City Towers, a locally developed office and retail complex that opened in Hanoi last December.
Vietnam Post and Telecommunications Corporation has signed a contract to lease more than 3,000 sqm in Ocean Park, another locally built property in Dao Duy Anh street.
While demand is expected to edge upward, new supplies of grade A office space in Hanoi will be extremely limited.
With the exception of Pacific Place, few other grade A buildings are under construction, and as a result, not many premium quality buildings will open in the next couple of years.
Market updates from real estate consultants CB Richard Ellis and Chesterton Petty Vietnam show almost all the 82,000 sqm of grade A office space in Hanoi is occupied at an average monthly rental of $23 per sqm.
Occupancy rates for grade B and C segments have reached more than 95 per cent, which might make it tough for tenants seeking large-scale office space in the capital in the near future.
Property consultants have predicted limited new supplies, increased demand and current high occupancy rates would drive up rental rates of grade A offices in the near future.
Pacific Place, a $40-million development, has sold all 185 apartments at $2,200 per sqm for a lifespan of 37 years. The building also has 8,000 sqm for retail space.