_HCMC Office Market reports first 10,000 m2 transactions

New buildings enter with healthy absorption following period of low supply

March 25, 2024

Ho Chi Minh City, 26 March 2024: Q1 2024 ended with two new buildings joining the market – The Nexus and VP Bank Saigon Tower – bringing a total of 55,371 m2 NLA to the Grade A market.

New buildings entering the market raised the asking rents for Grade A to US$58.06 pm2 per month, increasing 1.98% q-o-q and 0.3% y-o-y. Vacancy rate for Grade A reported at 16.7%, with an absorption of nearly 32,000 m2 in the reviewed quarter. This heightened absorption is mostly driven by good pre-leasing activities in Nexus with major transactions from 2,000 to 10,000 m2.

Meanwhile, Grade B reported healthy performance, with asking rents and vacancy rate at US$34.31 pm2 per month and 9.0%. While asking rents remained stable q-o-q with a 0.5% increase, vacancy rate for Grade B dropped 2.3 ppts q-o-q due to OfficeHaus having a major tenant leasing 10,000 m2 in the reviewed quarter.

“In the past, it was rare for us to see big transactions of over 10,000 m2 in the city, but this year, we have seen three such deals in new buildings. These deals indicate a growing need for substantial office spaces, due to the expansion of foreign businesses. This surge in demand represents a potential uptick in business activities and a positive outlook for Vietnam’s commercial real estate market,” remarked Leo Nguyen, Knight Frank’s Director of Occupier Strategy and Solutions.

Major transactions in the reviewed quarter came mostly from the Technology sector (75%), Retail (9%), and Pharmaceuticals (6%), mostly for relocation purposes (94%) with leasing sizes of more than 2,000 m2 (72%). Many companies that have chosen to relocate have also opted to lease more space than in their previous location.

“This suggests that these companies are experiencing growth and need additional space to accommodate their expanding operations. While some businesses may be facing challenges, others are seizing opportunities and positioning themselves for growth in the country. The surge in demand for larger office spaces and the willingness of companies to invest in these spaces speak to the confidence and potential of the HCMC office market. Prime examples of excellent leasing activity are shown across the city from the new office buildings in Thu Thiem – The Hallmark, in CBD – The Nexus, and in Office Haus, a project on the fringe of the city, which have achieved occupancy rates of approximately 70 – 80% in a relatively short time after opening”, Leo explained.

Looking forward to the end of the year, new supply for Grade A will come from The Sun Tower in CBD with 80,000 m2 and 52,780 m2 for Grade B with Etown Central in Non-CBD and D’Saint Raffles in CBD. Massive new supply in Grade A, likely with high asking rent, is expected to hike up asking rents and vacancy rate to the range of US$60 pm2 per month and 27%, respectively. Grade B performance is expected to reflect gradually decreasing asking rents and vacancy rates to the range of US$33 pm2 per month and 13%, respectively.

“Many office buildings in HCMC have been over 90% occupied for several years. However, given the increased available space, occupancy rates are expected to drop in older buildings when tenants move to new buildings. Ultimately, the increase in available office space will have significant implications for both landlords and tenants. Landlords will need to adapt to the changing market conditions and be prepared to offer more attractive leasing terms. Tenants, on the other hand, will have more options to choose from and more bargaining power when negotiating lease terms,” Leo observed on the outlook for the HCMC office market.