Nothing shakes demand for premium office space

In Q3 many new premium office buildings entered the market in Hanoi and HCMC.

The Thu Thiem area in HCMC, located across the Saigon River from District 1, saw 84,000 square meters of new office space added with the opening of The Hallmark (54,500 m2) and The Mett buildings (30,333 m2).

According to real estate firm Jones Lang LaSalle (JLL), the two buildings have green certification and attracted great interest among companies in the finance–banking industry.

In the event, they quickly occupied most of the available space.

In Hanoi, the biggest premium office building completed in Q3 was the Lotte Mall West Lake with 20,553 m2 of space while the total grade A office space on the market was 491,000 m2.

Despite the large supply, the absorption rate and rents continued to increase, mostly due to large clients in banking and insurance leasing space in the Lancaster Luminaire, TNR Tower and Lotte Mall West Lake buildings.

During the quarter grade A office rent in Hanoi increased by 0.5% from Q2 to US$32.6 per m2 per month.

However, grade B rent fell by 2.24% to $15.3, according to JLL.

In Q4 supply has increased even faster, with two new buildings, The Nexus and E.Town 6, coming up in HCMC and one in Hanoi.

JLL forecast rents to remain steady despite the growing competition.

Canadian real estate services firm Avison Young said while office space is in low demand in many countries, premium office buildings in Hanoi, HCMC and Da Nang all have occupancy rates exceeding 85% since the beginning of 2023.

Vacancy rates are below 5% in buildings with LEED (green certificate) in downtown HCMC, like the Deutsches Haus and Friendship Tower buildings.

Experts listed some factors that are keeping the market robust.

Firstly, it is smaller than in other countries in the neighborhood at only a third of Bangkok and Jakarta’s and a fourth of Manila’s.

But HCMC has three times the number of office worker as Bangkok, Manila and Jakarta, and twice that of Singapore.

Consequently, demand for office space far outpaces supply, according to Avison Young.

When choices are limited, it is a seller’s market where average rents for premium office space are twice or thrice as those in Bangkok, Jakarta and Manila.

Besides, Vietnam bucks the global trend of remote and hybrid work.

"Working culture here is very different," David Jackson, CEO of Avison Young Vietnam, commented.

"Vietnamese employees like direct communication, in-office training and a close-knit working environment. This is the reason why office spaces will do well in the market, not just in the short term, but for many years to come."

Thirdly, foreign investment in Vietnam is surging, totaling $25.76 billion in the first 10 months of 2023, which means more foreign businesses are filling up office buildings.

"Though the economy faces certain challenges, HCMC is still an attractive destination for multinational corporations," JLL’s Q3 report said.

As foreign investors consider adding Vietnam to their supply chain, environment, society and governance (ESG) standards greatly influence their decision.

Vietnam still lacks high-quality office buildings that meet green standards.

According to the Ministry of Construction, the country only has around 300 green buildings.

Avison Young Vietnam said this is not a situation that would change quickly, and so businesses would continue to pay high rents but not find offices that meet both sustainability standards and the growing health and wellness demands of employees.