The office rental market is facing enormous challenges as many businesses have extended their lease contracts or postponed office relocation plans. Occupancy is expected to decrease until the end of 2021 due to pandemic uncertainty. However, post-pandemic recovery and future supply are expected to increase competition.
Despite a 6% year-on-year (YoY) rent increase in H1/2021, rents are expected to decrease in H2/2021 due to a market slowdown. Ms Hoang Nguyet Minh, Director of Commercial Leasing, said, "Tenants are struggling to make leasing decisions because of pandemic uncertainty. Most businesses have decided to renew their lease or postpone moving until after Covid.”
While some tenants might request rent reductions in the short term this is not expected to continue post-Covid. Ms Minh commented, "Ha Noi’s rental prices reflect the market value and what tenants can afford therefore, rents do not need to be reduced to retain customers."
CBD Grade A rents are significantly higher compared to the West of Ha Noi; ample supply and low rents in the West mean that Ha Noi’s average rent is US$33/m2/month. Mr Matthew Powell, Director of Savills Hanoi, said "Rent has remained stable and Grade A had the highest average rent of US$38/m2/month. With limited Grade A supply in the CBD, new launches are quickly absorbed, and rents remain stable. Some projects have pushed up the average market price, such as the renovated International Centre at 17 Ngo Quyen, which boasts brands like Dior and Louis Vuitton, a great position, and improved quality.”
With high CBD rents and pandemic uncertainty, offices are contemplating flexible office services. While they might seem cheaper in the short term, Ms Minh warns that flexible office solutions will not necessarily optimize costs, and it is uncertain if they can provide long-term savings.
Mr Powell added, "Rental prices will continue to depend on the market supply. Many domestic and international businesses tend to prefer large, high-quality office spaces. With many projects under construction, the new supply is likely to make the office sector much more competitive."