Improved macro-economic conditions and limited vacancies will make office rental costs in Ho Chi Minh City to head upwards while the prices in Hanoi remain steady, Savills Vietnam announced on December 22.
In terms of market performance, demand for Grade A and B offices has strengthened in both cities.
On the back of the increasing demand for Grade A and B offices and inadequate supply for large floor plates, some investors in Ho Chi Minh City are planning to rise rentals for Grade A offices despite current costs are standing at US$46 per square metre per month.
In Quarter III, average occupancy for Grade A and B offices was 93%, growing 2% from the same period last year. Grade A occupancy recorded highest capacity in the past six years with 96%.
Ho Chi Minh City is taking out a lease on nine buildings, including the recently-operated Vietcombank Tower. Saigon Centre Phase 2 and Deutches Haus, which are under construction, will enter the market in Quarter III, 2017.
In Hanoi, average gross rent in the period was US$21 per square metre per month, down 0.2% year-on-year. Rental demand is making a recovery with occupancy rate of 91%, up 9% from last year.
Regarding the future supply and demand, Savills said that Ho Chi Minh city will have 190,000 square metres of Grade A and B space for lease by 2017. Nearly 77% of the supply will be located in the central area. Whilst grade A supply is limited, opportunities are set to arise from new Grade B offices with lower rent thanks to convenient locations, standard management services and high-quality facilities.
Occupied offices in the southern hub are forecasted to increase by 13% in 2016 and 14% in 2017 while rental costs are expected to grow 4% in 2016 and 9% in 2017.
Meanwhile, there will be approximately 460,000 square metres of Grade A and B office space, in which the secondary area and the west will account for the majority of future supply. Investors will need to continue to compete to attract tenants.
Demands for offices in Hanoi are expected to rise 11% in 2016 and 15% in 2017 and average rent is said to expand 4% in 2016 and stabilise in 2017.
According to Savills’s survey, the need for Grade A and B office space in the two cities was dominated by foreign enterprises. In Ho Chi Minh City, foreign enterprises accounted for 76% of the leased areas while the figure in Hanoi was 66%.
By industry, finance, banking and insurance companies dominated the offices in both cities. They made up of 28% in Ho Chi Minh City and 30% in Hanoi.
A Savills representative said that short-term prospects for foreign demand look strong. Free trade agreements will attract and enlarge existing manufacturing, distribution and logistics. Stellar GDP growth, along with the increase in the number of newly registered local enterprises triggers domestic demands.