HCM City office market recovers

Ho Chi Minh City’s office market witnessed its first positive signs in the first half of this year since being affected by the COVID-19 pandemic for the previous two years, experts said.

A report from CBRE said that for leasing, relocation accounted for more than 50% of total transactions, and the remaining transactions were for expansion, renewal and new letting, at about 27%, 12% and 10%, respectively.

There were no more contractions as there were in 2020 and 2021, the company said.

In the first half, the company said, there was one new Grade B office building, CMC Creative Space in District 7. The total net leasable office supply in HCM City was roughly 1.5 million sq.m.

The average vacancy rate of Grade A decreased by 1.6 percentage point quarter-on-quarter and 2.1 percentage point year-on-year to 10.1%, mainly due to major absorption in District 7. Meanwhile, the average vacancy rate of Grade B remained at 9.7%, almost the same as last year.

Information technology (IT) and service industries accounted for more than 50% of total transacted areas. IT firms with growing business and investment continue to expand their leasing and quickly finalize their decisions within three to six months.

With the recovery of manufacturing after the pandemic, sourcing companies are coming back to Vietnam and actively seeking office space, making up a rising percentage of new leases. All these brands are from the US, including outdoor and sports equipment, CBRE said.

Cushman and Wakefield confirmed that despite many changes in behaviour and habits of office users in the past two years, Vietnam’s office market including HCM City in the first half of 2022 showed recovery and growth.

Forecasts for demand continue to look positive largely due to growth in office-based employment, weaker adoption of flexible working practices, and the enduring vital role of offices. The future workplace will be an ecosystem that offers many options for employees both in terms of workspace types, working time, and amenities around the office, according to the real estate service firm.

The second quarter report from the company saw office rental price remain relatively stable, even at final units in prime location buildings. Grade A and Grade B average rents were US$59.9 per sq.m per month and US$34 per sq.m per month, up 1.9% year-on-year and 1.2% year-on-year, respectively.

Trang Bui, general manager of Cushman and Wakefield, commented, “Demand for Grade A and B office rose due to the growing number of newly registered businesses and expansion needs from foreign investors. Most companies expect a quality space equipped with expansive view of the city centre, one that can enhance the brand, attract clients and talents alike. However, the past five years has seen no new supply of Grade A office space, and the number of projects to be launched in the next two years is scarce: The Hallmark [handover expected at end of this year), The Sun Tower [handover expected in 2023]. The supply shortage situation is also in mid-range segment as there are only a few buildings completed and ready to be leased this quarter: CMC Creative Space [District 7], Pearl 5 [District 3].”

The report from CBRE said that HCM City expected to welcome nearly 30,000 sq.m of net leasable area (NLA) in the second half of 2022 from three Grade B buildings and two Grade A building. Along the Sai Gon River, previously delayed buildings due to COVID had resumed construction, and a well-planned and magnificent skyline for this area was shaping up. The total supply of this area would be 250,000 sq.m.

Due to the fact that most of the new supplies of the latter half of 2022 are in non-CBD areas, rent of both grades are forecast to stabilise until 2024, according to the report. The vacancy rate of Grade A after a period of recovery since the second quarter of 2021 is expected to rise to more than 25% in 2024 when a new wave of Grade A is launched.