Rising demand for green-certified office spaces and hybrid working: Expert perspectives

Matthew Powell, director of Savills Hanoi

How does Savills assess the trends and demand for office real estate going forward?

Matthew Powell: It's really positive that the demand has been so strong post-pandemic. For the most part, many companies have survived well and on return to the office, everything has gone smoothly – especially in sectors such as technologies, IT, insurance, and manufacturing.

Foreign direct investment has been a big demand driver for office space, so we've been very pleasantly surprised to see that. All the new office space we're working on has been expanding into nicer offices or been from new companies opening for the first time in Vietnam.

Vietnamese corporates are expanding, so on the demand side, it's been very encouraging. For example, we're expanding our office this year and moving to a hybrid working style as well, so there has been a change in the way offices are used.

How do you see the movement of office real estate and its prices over the coming time?

Powell: As for the price, Hanoi is still a relatively small office market compared to a lot of other cities, so occupancy is for the most part very high. There's also a factor of office buildings improving in quality, which can have an upward impact on price. It can be more expensive for a nicer new building. In general, we're seeing office rents either stable or starting to increase as the very low vacancy rate increases prices.

However, there is quite a lot of variation across the city. We have buildings like Capital Place, which still have quite a lot of office space to lease. With the increased demand and movement toward higher-quality space, it's likely that rents will start to increase over the next six months. But, there's still a good window of opportunity for companies to lock in good rentals. Between 2023 and 2025, high-quality developments with LEED Gold green certificates including Techcombank Tower - 6 Quang Trung, Gelex 10 Tran Nguyen Han, 36 Cat Linh, and Tien Bo Plaza will enter the market. So it's really a good time to start looking at it now because the rents will start to increase.

Hoang Nguyet Minh, senior director, Savills Hanoi’s Commercial Leasing

What are the most outstanding advantages of Techcombank Tower compared to others in the same segment?

Powell: Techcombank Tower - 6 Quang Trung will be the only office building in Hanoi’s central business district to enter the market in 2022. This will create great competition over other office buildings in Hoan Kiem which were built over 20 years ago with old designs and technical standards. It is a world-class development that meets international standards in terms of construction quality and management. The exacting standards implemented at every stage mean tenants will enjoy flexible and luxurious working spaces. We expect Techcombank Tower - 6 Quang Trung to satisfy tenants, providing premium and inspirational spaces that uphold the reputation of the companies establishing themselves there.

Tenants will feel comfortable as the column-free floorplates promote collaboration, the air purification system creates a healthy environment, and the soundproofed floor means the offices are quiet.

Minh: Due to the abundant supply, the rental prices of grade-B buildings will be stable. In contrast, grade-A buildings' rental prices will soar rapidly. Techcombank Tower will be the only grade-A office with 8,000 square metres of floor space in Hoan Kiem district. Moreover, there will not be large 100,000sq.m buildings like Kangnam, Techno Park, or Capital Place in the future. They will be replaced by an average floor space of about 15,000-20,000sq.m. The pressure on the rentals will not be as heavy as when there is a large rental floor area, so landlords will be interested in tenants who can stick with it for a long time.

In the next five years – including Gelex Tower – there will be only 15,000sq.m of floor space for the office market in Hoan Kiem district. Techcombank Tower has already occupied two-thirds of its total area and only 8,000sq.m are left, so the pressure to compete with buildings in other areas is low.

The rising demand for green-certified office spaces and hybrid working: Expert perspectives

Investments in green, hybrid and agile workplaces increase the costs of construction and rentals, so how should landlords and renters adapt?

Powell: In many cases, most multi-national corporations have made binding commitments to green up their office portfolios worldwide, not just in Vietnam. It is imperative to choose the greener building options so that companies can report to their shareholders that they're doing their bit for sustainability and ESG commitments. Therefore, choosing a LEED Gold green certificated office building like Techcombank Tower would help tenants to easily cater for all ESG requirements. As for the increased costs, it's more about designing cleverly and a bit more considerately. It doesn't have to be so expensive.

The real estate sector is a big contributor to greenhouse gas and carbon emissions. For a green premium, there's an increased cost to developing the space but developers will be able to achieve higher rentals and occupancy rates, so they will be future-proofed. They'll love their business life much longer than if they built a building that wasn't meeting the standards now. It might be cheaper in the short run, but in the long run, it would not be a wise investment decision.

Besides that, there's also the employee side of things. Attracting good quality employees is very difficult now, so the quality of the office building is very important when people are choosing which company to work for. If businesses are in a lower-quality building, it is much more difficult to hire good-quality staff.

Minh: I see that the construction of a traditional workplace is more costly than a hybrid one due to the partitions allocated to each department. In a hybrid working model, there will be more surrounding utility areas to create a flexible working environment for employees, so interior design costs are lower.

Regarding the green offices, the high cost will be paid by the developers, not the tenants. Moreover, the tenants will save electricity and water fees during operation. So the rental price will be a bit higher due to the high construction cost, but tenants will have a better working environment to promote their creativity and enhance their performance.

How does Savills advise businesses to choose grade-A or B offices to fit with their budgets and the number of employees?

Minh: The office market in Hanoi is very clearly divided in terms of price brackets. Although the quality of grade-A office buildings in the capital is very good, the prices in Cau Giay and My Dinh compared to Ba Dinh and Hoan Kiem districts are very different. They are typically around a half compared to the centre even though the construction quality is as good.

Therefore, renters should choose high-quality buildings with manageable costs. Over the past decade, decentralisation has become increasingly popular so opinions on the office location have changed significantly and there are more options in the office real estate market.