From 2019 onwards, tenants in Hanoi’s office market will have even more options to consider, given the increasing volume of office supply to be introduced in both Grade A and B, according to CBRE’s quarterly report released on April 10.
Approximately 138,000 sq m is expected to come on stream in Hanoi throughout 2019, 62 per cent of which is in the city’s west, which continues to strengthen its position as the largest office supply hub.
Locations in the midtown and west of the city will continue to appear on the prioritized option lists of IT firms and insurance or bank branches. Meanwhile, MNCs, embassies, and financial sector companies will have new options in the CBD for expansion or relocation.
In terms of demand, on the back of strong economic fundamentals, the financial and IT / Tech sectors remain in good shape with stable demand drivers. CBRE forecast that flexible space providers will continue to be a major source of leasing demand in 2019, given the increasing need for improving space efficiency among corporate clients.
Hanoi’s office market still saw relatively strong demand in the first quarter, primarily from local IT / Tech and flexible office providers as well as foreign insurance companies, with net absorption of 21,600 sq m, up 9 per cent year-on-year.
One Grade A office entered the market in the first quarter in Hanoi: Thaiholdings Tower with 24,545 sq m NLA, increasing the Grade A stock in the CBD by 10 per cent. This is the newest Grade A supply after three years without new supply and the newest office supply in the CBD-submarket.
As at the end of the first quarter of 2019, total office space in Hanoi had reached approximately 1.3 million sq m, of which Grade A accounts for only one-third.
Vacancy rates in Grade A went up by 5.0 percentage points (ppts) compared to the previous quarter due to new supply, staying at 9.4 per cent, while that of Grade B went down 2.6 ppts quarter-on-quarter, reaching 9.6 per cent, the lowest level for the last three years.
Ho Chi Minh City’s office market, meanwhile, only welcomed two new Grade B buildings with a total NLA of 19,800 sq m: the Thaco Building in District 2 and OneHub Saigon 1 in District 9.
Due to healthy performance in the traditional office market and limited vacancies, the head lease / sublease business has been growing in recent years, including Pax Sky, Dragon Fly, Todd’s Realty, and GIC Office. These operators usually lease the entire stand-alone building (usually Grade C or basic standard office) from an independent landlord and sublease to small tenants.
Besides flexible workspace, insurance companies will count among the anchored tenants in the office market over the next three years.
According to figures from Swiss Re Institute Sigma, Vietnam is one of five countries with a low insurance penetration rate, but its insurance premium growth rate is even higher than developed countries, indicating plenty of opportunities for growth and that the country’s insurance market will likely continue to develop further in the future.
From 2019 to the end of 2021, the Ho Chi Minh City office market is expected to welcome 16 new office buildings with more than 400,000 sq m NLA. The market is expected to have higher vacancy rates and slower rental growth in both Grade A and Grade B, while rents in Grade A will remain high.
Rental growth in Grade A is expected to reach 4 per cent this year and vacancies will fall to 4 per cent due to new Grade A supply only being launched at the end of the year or the beginning of 2020. Grade B asking rents are expected to decrease slightly, by 1.5 per cent, and vacancies are forecast to increase 6.9 per cent due to a large Grade B supply coming on stream this year.
VN Economic Times