Ha Noi grade A office with capitalization rates up to 7%, is under increasing foreign investor attention as performance holds steady during Covid-19.
Ha Noi is one of the two most dynamic office markets in Viet Nam. High demand and limited vacant space are pushing rents up. The latest Savills research disclosed that demand has remained stable over the pandemic while most other real estate segments saw significant declines.
To 9M/ 2020, Ha Noi GDP increased 3.3% year on year (YoY) against national GDP moving up 2.1% YoY. Asia Development Bank forecast Viet Nam GDP will increase 1.8% YoY, while other SE Asian countries are set to decline. With 6.3% growth forecast for 2021, Vietnam will lead SE Asia. Free Trade Agreements (FTA) will positively affect market performance because of tariff commitments, high competitiveness, strong FDI and economic growth. The continuing US-China trade tensions will see more multinationals mulling manufacturing shifts to Viet Nam.
Overseas tenants, particularly FDI enterprises are interested in quality office space. Ms. Hoang Nguyet Minh, Savills Vietnam Associate Director of Investment explained: “There are core factors that make Ha Noi office one of the most attractive segments for overseas investors looking for a position in Viet Nam Real Estate”.
First is increasing FDI inflows correlating with rising office space demand. Overseas investors are experienced in developing international standard office buildings that meet foreign tenant requirements. This also helps improves occupancy levels when developments come into operation. Compared to other asset classes, office with typical 3 to 5 year tenancy agreements allows steady investor cash flow. Adding further appeal is occupancy rates staying high in major Viet Nam cities with Ha Noi at around 90% for the past 5 years.
Secondly, profit from office buildings. Gross Operating Profit (GOP) is up to 30% for 5-star hotels and up to 50% for 3- and 4-star hotels. Which is good, but in Ha Noi office, GOP can reach up to 80 percent. High and increasing segment investor interest is driving Ha Noi office building values higher and seeing up to 7% capitalization rates.
Ms. Hoang Nguyet Minh confirmed it is understandable Ha Noi is under growing investor attention from Singapore, Japan, and South Korea. Rents in Ha Noi office are lower than HCMC: In the CBD grade A office rent in HCMC is up to 60 USD/m2, against 43 USD/m2 in Ha Noi. The expectation is Ha Noi office will achieve parity fairly soon. Occupancy has remained stable overall. Effective early containment of Covid-19 has reassured investors while adding further appeal to Viet Nam as an operational base and very safe place. Even under pandemic there were high-value transactions being made.
Mr. Matthew Powell, Director of Savills Hanoi confirms the point: “Compared to other cities in the region that have seen sharp occupancy drops, Ha Noi has remained an attractive and stable market. In ASEAN, Ha Noi office occupancy of 94% eased just -1% YoY to be just behind Singapore and Ho Chi Minh City. This shows potential for strong post-pandemic recovery.”
In Ha Noi by 2022, approximately 192,000m2 from 17 projects will enter with most Grade A supply entering in inner areas. Notable projects include Century Tower in Q4/2020, Vinfast Tower and BRG Grand Plaza in 2021, and Lotte Mall Hanoi in 2022.
Recently some apartment building podiums have been switching use to office space. This together with extensive future supply may pressure average occupancy and rents for the next two years. Looking longer term, office developers will look to improve health, safety, and operational standards. Effective management and more sustainable or green design are two areas which will help investors achieve greater success.