Office for lease in Ho Chi Minh City records positive signals

New high-end supply is well received

According to Savills Prime Office Costs report for the third quarter of 2023 on global office costs, it shows a difficult context for high-end office markets due to sharp increases in costs and declining occupancy rates. Particularly in Vietnam, the Ho Chi Minh City office market in the second half of 2023 still recorded optimistic results.

In 2023, the total market supply will continue to increase. In particular, Grade A contributes significantly with a 68% year-on-year increase when welcoming three new projects along with three upgraded Grade B projects.

Savills' Ho Chi Minh City real estate market report IV/2023 also shows that supply increased by 3% quarter-on-quarter and 6% year-on-year to reach 2.7 million square meters of net leasable area (NLA). In the second half of 2023, Savills recorded many office leasing transactions from the Finance, Insurance and Real Estate (FIRE) industry group in the high-quality building segment.

Office for rent in Ho Chi Minh City recorded positive signals in the general gloomy context of the market image 1 — Office segment performance in Ho Chi Minh City 2023

According to Ms. Lai Thi Nhu Quynh, Deputy Director of Commercial Leasing Services at Savills HCMC, this signal shows that tenants have a positive attitude towards high-end office space and tend to choose the near-central area. In particular, the Thu Thiem area is a bright spot attracting much attention from tenants when providing high-quality premises, large areas and competitive rental prices.

"At the same time, businesses that had previously planned to expand their offices have also found many suitable options in recent times from new supply sources in the diverse market in many different areas of the city. This shows the more confident mentality of businesses when moving offices during difficult times," the expert added.

Office for rent in Ho Chi Minh City recorded positive signals in the general negative context of the market image 2 — Ms. Lai Thi Nhu Quynh, Deputy Director of Commercial Leasing Services, Savills HCMC

High occupancy rate of nearly 90%

In Q4/2023, rental prices increased by 1% QoQ and 5% YoY to VND779,000/m2/month with high occupancy of 89%, down 1 percentage point QoQ and 4 percentage points YoY.

Mr. Neil MacGregor, Managing Director of Savills Vietnam, said: "Vietnam's office market is bucking the global industry downturn and maintaining high occupancy rates with steady rental growth. Ho Chi Minh City has emerged as one of the best performing office locations in the Asia- Pacific region due to healthy demand and supply remaining limited compared to economic growth potential."

Take-up in the quarter reached 38,000 sq m NLA, mainly from new Grade A and C projects. Grade A accounted for 66% of take-up with tenants from the banking and information technology (IT) sectors, while Grade C accounted for 19% of new contracts from distribution businesses. Savills’ 2023 transaction survey also showed that office space expansion transactions accounted for 74% of total transaction area.

Tenants in the Finance, Insurance and Real Estate sectors prefer high-quality projects and tend to move to non-CBD areas. Meanwhile, IT and Distribution tenants prioritize projects with good rental prices. New office transactions account for 15% of the leased area, of which foreign enterprises account for 74% of the transaction area and prefer Class A and B projects; domestic enterprises choose the Class C segment and account for the remaining 26%.

Office for rent in Ho Chi Minh City recorded positive signals in the general negative context of the market picture 3 — Class A offices are still popular.

“In the process of supporting customers, Savills Office Leasing Services HCMC has noticed that tenants are increasingly looking for new high-end buildings that meet sustainable development standards, green certification and wellness. Industry groups such as finance and manufacturing are still the main tenants leading the market in the context of economic fluctuations,” said Ms. Quynh.

According to Savills, in 2024, 10 projects with 142,000 m2 NLA are expected to enter the market. The Ho Chi Minh City Center for Human Resources Demand Forecasting and Labor Market Information also said that businesses in the FIRE, IT and Distribution sectors will continue to expand in 2024. Good demand will promote the market to continue to maintain high and stable capacity.

By 2026, approximately 70% of future supply from Grade A and B projects will have green certifications such as Green Mark and LEED. Based on future supply and economic outlook, rents are expected to decline slightly by 1% per year during 2024-2026.

Source