Ho Chi Minh City and Hanoi’s office space (Sept 23, 2009)

KUALA LUMPUR: The global economic slowdown slammed hard into Vietnam’s burgeoning economy. However, a strong and steady upward surge is being seen as the country fights its way out of the recessionary drag. The office sector is seen to be active with numerous transactions, thanks to lower rents and new office supply. The PA International Property Consultants 2009 bulletin, which covers various other areas of the property market, provides a sneak peek into this subsector in Ho Chi Minh City and Hanoi.

Ho Chi Minh City

The current nett lettable space for Grade A buildings is approximately 74,000 sq m with an additional 31,500 sq m coming online IN September 2009 in the form of Kumho Asiana Plaza. There are 125,000 sq m for Grade B+ office space, with an additional 25,000 sq m coming online in 2010. There isn’t any supply for for Grade B structures at the moment but 2010 should see 32,000 sq m of lettable space coming on line. One Grade A building pumping up supply is Kumho Asiana Plaza -- due for completion this September, 27% of its office space is pre-leased while 75% of retail space has been pre- let.

The line between Grade A and B spaces has blurred, which allows for better bargaining power and wider choice of quality office buildings for tenants. However, most newly vacated spaces in Grade A buildings were snapped up by adjoining multinational tenants, at rates of below US$47 per sq m (RM162.88) in some cases.  For the time being, occupancy rates for Grade A buildings stand between 90% and 95% and Grade B about 20% to 100%.

Overall, the pool of prospective tenants has decreased, along with their ability to pay premium office rentals. However, there are reasonably strong transaction activities as landlords have lowered rentals rates and these include incentives such as fit-out and rent-free periods.

As of 2Q2009 rental rates for Grade A offices are between US$35 to US$50 per sq m. This downward rental trend is expected to last through 2009, with discounts of between 35% and 40%.

Hanoi

The office market in Hanoi is divided into two areas -- the old CBD Hoan Kiem district and a section of Hai Ba Truang; and the new CBD in Cau Giay district. The former has strict regulations which restrict buildings to between 8 and 14-storeys, while land for development is scarce and expensive. The latter sees landmark high-rises such as Keangnam Tower in Pham Hung, is due to be completed in 2011 with 91,000 sq m of Grade A space. Intermediate area comprises of Tay Ho and Dong Da districts where buildings are typically medium-sized and 18 to 24 storeys.

The current supply of Grade A buildings has a nett lettable area of 105,000 sq m. Incoming supply in the near future is Capital Tower at 107 Tan Hung Dao with 23,000 sq m and CEO Tower in Pham Hung with 18,000 sq m. Grade B structures are estimated to have 334,000 sq m of space.

At the end of 2008, demand dropped as tenants downgraded from Grade A to Grade B office space to lower operating costs. However, for the old CBD Hoan Kiem district, occupancy rates have remained stable, largely due to landlords offering discounts of 20%. It is anticipated that with improved infrastructure in the future, the new CBD in Cau Giay district will possibly draw demand away from Hoan Kiem.

Currently, the average rents for Grade A and B offices have dropped by about 20% compared with the corresponding period in 2008. It is anticipated that rents will drop further in 2009 as more developments come on line. Rates at the moment for Grade A offices are US$50 per sq m in the Hoam Kiem district and US$20 to US$40 per sq m in Cau Giay.