Tenants to benefit from Ho Chi Minh City rental market

January 12, 2023 | 08:02
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2023 is anticipated to be a tumultuous year for the office-leasing market, as many commercial buildings in Ho Chi Minh City, particularly those in much-desired locations with top-tier tenants, expect to see pricing and operational changes.
Tenants to benefit from Ho Chi Minh City rental market

The average monthly rent for Grade A office buildings in the centre of Ho Chi Minh City, such as the Saigon Center, Diamond Plaza, and Bitexco Financial Tower, has seen a climb of 15-20 per cent since the beginning of last year, to $57.73 per square metre. Despite the rise in rents, the capacity of these buildings is consistently 80-85 per cent.

Meanwhile, Grade B office rents remain unchanged at $33.78 per sq.m/month, with capacity over 90 per cent, while Grade C has consistently had the highest rates of occupancy at 96 per cent.

According to analysts, the rental market has been controlled by lessors for a particularly long time owing to the lack of available space. Beginning this year, however, as supply grows, the market should see a change as renters begin to gain power over landlords.

Knight Frank Vietnam Property Services noted in recent research that office tenants could dominate contract discussions in 2023 as Ho Chi Minh City builds over 300,000sq.m of extra Grade A and B office space over the next two years. The first projects are anticipated to become functional in the second quarter of 2023, with particular focus on the market entry of two projects in Thu Thiem and one in District 1.

According to Leo Nguyen of Knight Frank, the two sites in Thu Thiem, together with a number of other high-end buildings in the city centre, will contribute to a change in the market that should favour tenants.

Nguyen expects that Grade A office rent in the city has fallen by around $2 per sq.m/month. Prices should fall to $55.5 per sq m/month by the end of 2024, while vacancy rates may skyrocket to 20 per cent. Guests are now paying $33.68 per sq.m/month for Grade B office space, but by this time next year, rents may have fallen to around $27 per sq.m/month.

Improving experience

The shifting sands of the market have compelled commercial landlords, particularly in Grades A and B, to engage in vigorous competition. Le Viet Hoa, the owner of a network of three office buildings for lease in Districts 1 and 3, said that regardless of how advantageous office leasing activities had been in 2022, the pressure to win clients will rise dramatically this year.

According to Hoa, landlords used to have the power to choose their tenants based on who could meet stringent conditions, such as the requirement of tenants to pay several months' rent in advance. However, the market now demands workplaces offering attractive amenities, contract flexibility, and comprehensive services, and it is leaving many lessors feeling disconcerted.

"Offices and workspaces will be a factor in companies retaining talent and, more significantly, establishing a pleasant and convenient working environment for staff to work productively," Hoa said. "As a result, when new buildings join the market, it will be the responsibility of property managers in the near future to update the facilities to improve tenant retention."

Offices and workspaces will be a factor in companies retaining talent and, more significantly, establishing a pleasant and convenient working environment for staff to work productively.

"In addition to upgrading and maintaining the structure," Hoa continued, "building owners need to consider dropping the rent or offering discounts."

A number of office buildings that are due to open this year have included a variety of competitive features, providing tenants with greater flexibility.

"In order to compete with other buildings due to open at the same time, we are offering various favourable policies, such as exemptions and rent reductions, in the first few months, based on a preliminary assessment of the requirements of tenants," said Hoa.

The Nexus, The Hallmark, and The Crest Tower B are all planned for this year, while The Sun Tower, The Pearl, and IFC One Saigon are set to launch in 2024, according to Cushman & Wakefield (C&W).

So far, the southern part of the city has led the way in terms of renewed supply, but 2023 will be the year that the east emerges with a plentiful amount of Grade A office space. Together with excellent transportation links to the city centre, this will provide ideal circumstances for the east of the city to become a magnet for high-end firms and investment, added C&W.

Nevertheless, in the near future, there will be a number of changing trends in the commercial property market, such as remodelling older buildings to meet environmental requirements, with many historic buildings in desirable locations having already begun the process of refurbishment.

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