Hanoi and HCMC markets have attracted different levels of interest from many corporate tenants from Japan and Korea. Unlike HCMC where most Grade A projects are in or around the CBD, Grade A office development in Ha Noi already has projects over 3 different areas. This is one of the factors that have led to the great gap in the office rental between the two markets and office movements.
Office Movements
The prime office segment is prioritized for development in central locations such as Hoan Kiem District in Ha Noi or District 1 in HCMC. Increasingly limited supply and now significant investment costs in CBD areas has prompted decentralization with office developers in Hanoi and HCMC looking to develop projects in non-CBD areas.
The transition in Hanoi started 10 years ago while in HCMC has just started within the last 2 years. The 3 centers for Grade A office in Hanoi include the CBD, Mid-town, now accounting for 38% of the total Grade A offices supply and the West taking up for 35%.
Ms. Hoang Nguyet Minh, Director of Commercial Leasing, Savills Hanoi stated: “early decentralization has positively impacted office rentals. About 10 years ago Mid-town and the West were forced to discount to attract tenants, but are now stable with rapid growth. These areas offer relatively low rental compared to the CBD yet tenants can enjoy certain benefits and the high-quality of the buildings. Therefore, demand for Grade A offices is quite high in the two new centers, even higher than in Hoan Kiem District.
Ms. Tu Thi Hong An, Director of Commercial Leasing, Savills HCM shared “In HCMC, new office supply continues its shift outside the CBD. In the upcoming 3 years (2021-2023), HCMC will not have any new supply of Grade A offices in CBD. However, new areas of Grade A offices will be clearly formed outside the CBD, similarly to Hanoi market.”
Korean businesses given priority in Hanoi.
According to Savills Q1/2021 survey of Hanoi and HCMC based office tenants the sectors that dominate office leasing areas are Finance, Insurance, Real Estate, Manufacturing and IT. However, businesses from different countries prefer to set up office in different markets.
HCMC being the economic center is why multinational corporations often set up their head offices here. Meanwhile, Vietnamese enterprises still prefer to open their offices in Hanoi. Vietnamese enterprises take up for 46% of office occupancy in Hanoi and 35% in HCMC.
When entering Korean enterprises tend to prioritise Hanoi for establishing head offices as most Korean businesses do this and often support each other. Office space occupied by Korean companies in Hanoi is 60% higher than in HCMC. Samsung Group, as the largest investor into Vietnam has its two largest manufacturing and technology development centers in Bac Ninh and Thai Nguyen.
Japanese enterprises when entering often target manufacturing sector and also prefer community. According to Savills’ survey, Japanese enterprises’ office leased areas are on par in Hanoi and HCMC, showing equal potential and business scale in these markets.
Ms. Nguyet Minh claimed that the current office supply in Hanoi market do not meet the huge demand, but corporate tenants still have many options in high-quality and well-managed traditional office buildings. In this situation, large businesses, IT enterprises, or start-ups may look for Grade A offices in Mid-town and the West for a wide range of flexible options.
Ms. Hong An forecast that there are potential districts in HCMC to develop office buildings with high demand such as District 2, District 7 and Thu Duc District. However, tenants still prioritise District 1 when looking for Grade A offices since those non-CBD districts have not yet been centralised urban areas.
By the end of Q1/2021, the office market has seen positive signals of recovery. In Hanoi, from Q4/2020 to Q1/2021, new project launches of prime office space were Capital Place, Thaiholdings Tower and Leadvisors Towers. It is forecast by 2023, Hanoi will have more Grade A projects concentrating in Ba Dinh District situated in Mid-town area and Cau Giay District located in the West, the average rental of Grade A office in Hanoi is expected to increase up to 35 – 37 USD/sqm/month. In HCMC, demand from businesses is expected to grow and surpass the supply, and the Grade A office rental is estimated to rise at 3% YoY.