Savills recorded that the number of leasing transactions of office buildings in 2020 and Q1/2021 were 40% higher than which of the same period in 2019. Particularly from Q4/2020 to Q1/2021, the average leased area has increased remarkably, which was shown in the increase in number of transactions of over-1000-sqm office space. According to Ms. Hoang Minh Nguyet, Director of Commercial Leasing Savills Hanoi, Grade A office rents in Hanoi or Ho Chi Minh depend more on the future supply than issues relating to COVID-19.
Data of Savills Vietnam in Hanoi Market Report of Q1/2021 shows the stable operation of the office market in Hanoi, when Grade A has the largest year-on-year supply growth with 24% and the average rent being 33 USD/ sqm/ month.
While the office segment in Hanoi and Ho Chi Minh City are highlights of the real estate market as a whole, and the average rent in Hanoi remain stable at 33 USD/ sqm even during the Covid – 19 pandemic, Ms. Hoang Nguyet Minh, Director of Commercial Leasing, Savills Hanoi, shared: “The number of 33 USD/ sqm is the average rent of Grade A market, including buildings with a low occupancy rate (20 – 30%) and ones with high rate (80 – 90%). In fact, despite the impact of Covid–19, Savills also recorded that the number of leasing transactions of office buildings in 2020 and Q1/ 2021 was about 40% higher than which of the same period in 2019. Especially from the Q4/ 2020 to Q1/ 2021, the average leased area has also increased significantly compared to the previously recorded figure of only 300 – 500 sqm per transaction. However, recently, thanks to the higher quality and more reasonable rent of the new buildings, businesses tend to move their offices altogether, resulting in the increase in the number of transactions for over-1,000-sqm office spaces. This is one of the relatively significant improvements in the Hanoi office market.”
“The allocation of Grade A projects in Hanoi is spread out in Hoan Kiem, Ba Dinh and the west of Hanoi. The average rent of Grade A in western Hanoi reaches 20 – 25 USD/ sqm; and 40 USD/ sqm (service charge included) in Ba Dinh and Hoan Kiem areas. It is believed to be the reason why the average rent of the whole market in Hanoi remains at only 33 USD/ sqm. Meanwhile, in Ho Chi Minh City, the supply of Grade A offices focuses mainly in District 1 or near District 3. This concentration will raise the average rent of Grade A offices up to 50 USD/ sqm. The rent in Hanoi is still lower than which in Ho Chi Minh City and other cities of the same region, especially in the Grade A segment.
The rent of Grade A offices in Hanoi and Ho Chi Minh City depends more on the future supply than Covid 19-related matters. For example, in Hanoi, from Q4/2020 to Q1/2021, Capital Place – a Grade A office building - provides up to 93,000 sqm of floor area, Thaiholdings Tower provides 23,000 sqm, and Leadvisors Tower with 18,000 sqm. These can be considered as the huge supply of the market. Buildings that have just entered the market with large supply will often reduce rents in the first year to attract buyers; and the rent will gradually increase in the following years. It might be the main reason why the Grade A office rent in Hanoi from Q3/ 2020 to Q1/ 2021 remains quite stable”, Ms. Minh analysed.
Compared to other countries, the supply of Hanoi office market is more underrated than that of Singapore or Bangkok, Thailand. Thanks to the relatively low rent regardless of the great economic development potential, foreign investors are now focusing on developing the office market in Hanoi and Ho Chi Minh City.
Another noteworthy point of the office market after the COVID-19 pandemic is the trend of more co-working models. Ms. Minh claimed that the co-working model and the traditional office model do not directly compete against each other. The co-working model is motivated by the trend of young people enjoying working outside with a flexible working environment. Meanwhile, Grade B and Grade C offices reach the highest occupancy rate as businesses demand for a large office model with floor area ranging from 1000-2000 sqm. As a result, they are more likely to choose buildings with a more reasonable and affordable budget to save money for the interiors and adjustment of the working model to be aligned with the company culture. The co-working model might only be suitable for start-ups or newcomers in Vietnam market but not for companies with a long-term operating plan.
Regarding the FDI into the office market in the near future, Mr. Matthew Powell, Director of Savills Hanoi, stated: “We have recorded the expansion of local organizations and international businesses into the Vietnam office market. Vietnam is the target market of multinational companies, especially which in the field of technology, financial services, and life insurance. These companies are in demand for offices, and with the new coming supply, the office market will become much more competitive in the upcoming time. These are also factors continuing to motivate investors to develop the office market and expect the future growth in rents.
From a prospective viewpoint, Vietnam, with flexible monetary policy and effective COVID-19 prevention, has brought many advantages to the office market. No one must work from home for too long, no companies face financial pressure to find sub-offices in cheaper areas or to use virtual offices like in the U.S or the UK. In Vietnam, the demand for traditional office space continues to grow in addition to greater concerns about optimizing their usage.