Vietnam office market will make rapid recovery: experts

An office in HCM City (Source: VNA)

HCM City - The office market in Vietnamese cities like Hanoi and Ho Chi Minh City is likely to recover faster post-COVID-19 than other major cities in the Asia Pacific, experts have predicted.

“In the long term Vietnam remains the best destination in Asia,” Vo Thi Khanh Trang, head of research at Savills Vietnam.

"While in most of the cities researched grade A office rents have been falling, in Vietnam they are stable in Hanoi and have increased in HCM City.”

Rents in HCM City and Hanoi are the second highest in Southeast Asia after only Singapore, she added.

A report from Savill showed that HCM City has been the best performer in the region this year with occupancy of 96 percent and an increase in rents of 4 percent.

High-grade office space usually attracts foreign tenants, and so interest in the grade A segment would increase proportionately with FDI inflows, it said.

HCM City and Hanoi have been among the top five cities and provinces in terms of FDI inflows this year.

The company forecast FDI to increase strongly after the pandemic ends because of the series of free trade agreements signed in recent times, including the European Union – Vietnam Free Trade Agreement that came into effect recently.

The Government and the State Bank of Vietnam have been taking a number of measures to revive the economy, Trang said.

On the whole, a rapid recovery in the office market and abundant FDI inflows are expected from the second half of 2021, she said.

According to Savills, Vietnam has the smallest office market in the region. Grade A office supply in HCM City and Hanoi adds up to just over 730,000sq.m, or only 23 percent of Singapore’s supply and 19 percent of Kuala Lumpur’s.

Therefore, occupancy rates were very high when the Covid-19 crisis began, and landlords were enjoying a sellers’ market, increasing rents routinely.

Since the pandemic began, however, they have kept rents unchanged and even supported tenants by offering discounts and better terms.

Some tenants opted to move to lower grade buildings, out of the central business district or to townhouses.

Neil MacGregor, general director of Savills Vietnam, said: "The impact of the epidemic on the office market seems to be not significant at all, we have not seen such a sharp drop in office rents, maybe a little bit down but nothing serious.

“The market started to see owners or landlords giving short-term incentives for tenants, such as a 10-20 percent lease discount in a given quarter, or an increase in the free service period - moves that could be judged as unprecedented."

In the second quarter the market started to see tenants cutting space or moving to cheaper places. In both major cities, leased areas shrank as a result.

Following a fresh outbreak of COVID-19 in July, the office market continues to experience shrinking demand, and so occupancy rates are expected to fall in the second half of the year.