Empty horizon to heat up office market

photo source: diamondplaza.com.vn

David Brunt, property manager at Diamond Plaza, said that the supply of grade A office buildings has been fairly limited in the last few years. Vietcombank Tower has been recently launched, offering a lower rent compared to other Grade A buildings, earning it unprecedented popularity on the market—it has been snapped up rather quickly. Among the new buildings under construction, Saigon Centre Phase 2 and DeutschesHaus will come online in the near future. If these buildings are launched at the same time, competition will sharpen as space gets absorbed.

“This also affects Grade B buildings in District 1. At Diamond Plaza, we see Grade B tenants looking around to relocate and upgrade their offices. Some companies would like to expand their space or consolidate their offices in one building. As new buildings come online, there will be some short-term fluctuation in prices. Meanwhile, existing grade A and grade B buildings, like Bitexco Financial Tower and Kumho, need to become more competitive to fill up their buildings,” he noted.

In this sentiment, Humphrey Morgan, national head of office leasing at Savills Vietnam, said that with demand and building quality increased, more tenants are moving from grade C and grade B offices into better quality buildings. Besides, Mapple Tree is going to deliver a Grade A building in District 7 next year, which is forecasted to attract a lot of attention with its affordable rent. We may see companies establish back offices in District 7 due to the high occupancy and increasing rent in the CBD.

Christopher Marriott, CEO of Savills Southeast Asia, added that a wide range of free trade agreements have stimulated demand in the manufacturing industry as well as research and development in Vietnam. Therefore, the service and finance industries are expected to follow in suit and produce real demand in the coming time.

According to CBRE Vietnam, the office market had a quiet time in the first quarter of 2016, with no new Grade A and Grade B buildings appearing on the horizon. By the end of 2016, Ha Do Buidling in Tan Binh District and HQC Royal Tower in District 7, both Grade B, will come online. More, better-quality buildings launched by 2017 will offer more choice to tenants both within and without the CBD.

Recorded rents were stable in Grade B buildings, while Grade A slighty reduced by one per cent quarter-on-quarter. Two mature buildings reduced rent to attract more tenants. Owners tried to fill up the vacant space occupied by their major tenants who moved out earlier this quarter.

New buildings, such as Vincom Center, Vietcombank, and Bitexco Financial Tower, had a great leasing record since the fourth quarter of 2015, prompting them to mark up rent in the first quarter of 2016.

Based on CBRE’s enquiries, the most active sector in the first quarter was sourcing. Companies in this sector are looking for new space to occupy, and they often renew with longer lease terms. 64 per cent of the enquiries are made by old tenants considering expansion and relocation.

Regarding the future supply, this quarter recorded new completion dates of ongoing projects and two new projects in District 7. Four out of eight projects currently under construction are located in District 7. When these buildings are completed, competition between old and new buildings is expected to reduce the average rent in this cluster.