Source: Savills Research
The Savills World Office Yield Spectrum for the second half of 2018 indicates that Hanoi crowned the rankings with the highest office yield at 8.57 per cent. The capital city was followed by Manila (the Philippines), Adelaide (Australia), HCMC, and Perth (Australia).
For the third time since January 2017, Hanoi has been rated first globally for its central business district (CBD) Grade-A office yield at 8.57 per cent. HCMC, the previous runner-up, has dropped to the 4th plot with market yield at 7.36 per cent.
According to Hoang Nguyet Minh, Investment Manager Savills Hanoi, high yields indicate attractive rental income against capital value of office buildings and the fact that Hanoi and HCMC are among markets offering the highest yields globally shows healthy rent and occupancy prospects for these cities.
She noted that HCMC has enjoyed its best performance in the past five years, with average rents increasing 8 per cent on year and a very high occupancy rate of 97 per cent, while Hanoi recorded a year on year rise of 3 per cent in average gross rent in the fourth quarter of 2018 and steady occupancy rate of 95 per cent with improved Grade-A performance in non-CBD areas.
Understandably, these markets have been drawing big interest from foreign investors, notably those from Singapore, Japan, and the Republic of Korea.
Buyers’ demand remained high, yet there were very few investment transactions in 2018 due to the shortage of available properties for sale. A notable transaction was the January acquisition by Nomura Real Estate of a 24 per cent ownership interest in Sun Wah Tower, a Grade-A office building in HCMC, she added.
In the light of previous Savills office yield spectrum publications, Hanoi and HCMC witnessed a downward trend of yields from the second half of 2015 to the same period of 2018.
This again was backed by the limited supply of available offices for sale, which has resulted in more aggressive bidding prices from buyers, driving yields further downward. “Office sector remains as a seller’s market in Vietnam; in other words, if you are an office development owner, now is a good time to sell,” said Minh.
The second half of 2018 saw the average Asian office market cap rate drop moderately by 3 basis point (BPS) over the first half of the year to reach 4.74 per cent, supported mostly by robust domestic activity. The transaction volume recorded a growth rate of 20 per cent on year over the first half of the year despite expectations of a general decline in global liquidity.
China outbound saw significant shrinkage over the second quarter with investments restricted to a few large scale office deals in Hong Kong (China).
For the last 5 years, real estate remained a popular asset class with investment volume increased across many sectors. According to the Savills World Research using Real Capital Analytics (RCA), office was the sector that attracted the largest volume of global investment at around $340 billion during the period from the second half of 2017 to the same period of 2018.