Ho Chi Minh City’s Grade A office to give way to flexible workspace
The office market in Ho Chi Minh City still has limited supply which means occupancy rates are high and incentives offered by landlords are small, according to a report by market research firm Colliers International. Grade B offices also maintain high occupancy rates at 93 to 97 percent. Average prices of Grade B office space slightly increased last quarter with prices ranging between US$25-30 per square meter per month.
The completion of Lim Tower III and Sonatus will bring 43,000 and 33,000 square meters into the Grade A market in the third quarter of 2019. This expectedly brings more choices to the market, especially in the premium office space in the CBD.
The demand for premium offices noticeably gets higher than ever. For example, Deutsches Haus, Grade A+ commercial building with 40,000 square meters gross floor area in Ho Chi Minh, has been stably rented more than 95 percent of leasable areas in 2019’s third quarter. Besides, co-working space segment is projected to have a grow and expand due to the expansion of proptech in Vietnam. In which notable proptech companies can be referred to as Wework, Dreamplex, Toong and Regus.
Nearly 80,000 square meters of Grade B building will enter the office market in Ho Chi Minh by the end of 2019, which are Cresent Mall Phase 2 (District 7), Etown 5 (Tan Binh District) and ICT Tower 2 (District 12). Promisingly is more than 30,000 square meters of Grade B in District 1 coming in the next 2020, namely Friendship Tower (13,700 sqm) and The Vertex (18,704 sqm). No Grade A enters the market in 2020. Moreover, it is likely that enterprises gradually shift to using flexible workspace and co-working space to improve its working efficiency and cost savings.
Foreign tenants to stir Hanoi’s future premium office supply
The office market in Hanoi was becoming very active in the July-September period of 2019. It can be seen the occupancy rates in Grade A and B offices took an upturn, in which Grade A got over 94 percent and Grade B got approximately 86.8 percent. The price of premium office has soared by US$30-33, while the price of Grade B office was average at US$22, a bit of increase of around US$3 compared to the previous quarter.
In the third quarter of 2019, with the completion of two properties in Bac Tu Liem District, leasable areas for Grade B offices were upgraded to an additional 40,000 square meters. This site supply is expected to expand the office market to the West of Hanoi.
As part of the Hanoi urban expansion planning, new office plans are projected to spread outside the CBD (Hoan Kiem), namely Ba Dinh District, Cau Giay District and Bac Tu Liem District. Recently, the non-CBD premium offices have been launched with very attracted prices, which shall hold the average rental market price stable. Besides, there was no record of new presence of co-working space projects in Hanoi, even though the information technology industry sees robust growth, which strongly promotes the proptech.
Grade B offices will come up with roughly 45,500 square meters leasable areas by the end of 2019, whereas there will be no supply of premium office space in Hanoi. As a number of leasable areas was provided in 2019’s third quarter, it tends to have a rapid downward trend of occupancy rate of Grade A offices and Grade B offices can keep moving forward to fill up its vacancy. Astonishingly, it does not mean the price of office properties in the central area will slash, in contrast, Grade A can rise in price a bit in the next year. Indeed, foreign tenants, mainly from industry sectors: finance, insurance, information technology, telecommunications and real estate, are eagerly seeking for prime locations in Hanoi. Thus, more than 112,000 square meters of leasable office space will be supplied for Grade A offices in 2020, equivalent to 21 percent of additional leasable areas in the market.
Grade B supply to dominate Danang’s office pipeline
The office market in Danang presented a stable occupancy level in the third quarter of 2019, which remained at the average rate of over 90 percent. Noticeably, the Danang office market holds prices so attractive. The rental price of Grade A office retains at US$27.5 per square meter per month, while the average price of Grade B and C offices are nicely around US$14 and US$8 per square meter respectively.
Similar as the second quarter, there is no new supply for Grade A office market in the third one of 2019, reflecting a small scale of the Danang’s high-end office market. Yet the Grade B office market has been fairly extended, up to more than 100,000 square meters over the year. These leasable office areas mainly come from Hai Chau, the central district of Danang, and other area adjacent to this center, namely Thanh Khe District.
The Danang businesses have been outstripped since its administered renovation. Thus, there are a number of companies highly desirable for new office space, particular in software, information technology and financial service sectors. Clearly, most of demands were put forward in regard to Grade B offices because it offers favorable prices. It is reasonable to explain the great number of new Grade B office will be built up in the next periods.
By the end of this year, about 13,000 square meters of leasable areas are welcome to provide for Grade B office in Thanh Khe District. Regard the upcoming properties in 2020, there will be two new projects, i.e. Summit Building Tower and Crystal Tower, surpassing more 30,000 square meters of additional area for the Grade B level.