Retain tenants with incentives and discounts
Recently, an office system in Ho Chi Minh City with premises in District 1, Phu Nhuan, Tan Binh had to launch an unprecedented discount package for tenants, which is rent 2 and get 1 free. According to information from this office rental system, with the traditional office segment, tenants who rent 2m2 will get an additional 1m2. For example, if a tenant rents a 200m2 office, they will be able to use a 300m2 office.
In addition to the above program, this unit also offers a stimulus package for new lease contracts in the form of 2 for 1. Specifically, when customers sign a 2-year office lease contract, they will receive an additional year of use. The payment method is also applied more flexibly by this system than before, such as paying 12 months of rent and getting 1 month free, 24 months and getting 3 months free...
In addition to the office system with unprecedented discount tricks mentioned above, in Ho Chi Minh City, there have been a few leasing units that have publicly adjusted prices or offered incentive packages, promotions with discounts of 20% - 30%, even up to 50% of the rental price in the short term. It can be seen that with the increasing number of discount programs, some Grade A office leasing units have appeared with prices ranging from 20 - 45 USD/m2/month. While previously, quality Grade A offices in Ho Chi Minh City were priced from 35 - 70 USD/m2/month.
The "wave" of evictions has forced many landlords to offer special incentives to retain tenants.
Class B office rental prices have also dropped sharply from 20 - 35 USD/m2/month to only 10 - 30 USD/m2/month after applying promotional programs of leasing units. This is considered a good price when office rental prices "peak" after a period of good growth.
In addition to reducing rental prices and offering good price promotions, some leasing units also offer policies such as furniture support to attract new tenants. Or some units have divided and leased small areas to retain businesses that have cut staff, helping businesses to be flexible in finding rental premises during difficult economic times. In particular, in addition to adjusting rental prices, some leasing units also have policies to extend payment schedules or delay payments for customers who are having difficulty with cash flow.
Supply increases, prices continue to decrease
According to JLL Vietnam, office supply in Ho Chi Minh City has increased significantly in the first months of 2023. The area of Grade A office space in Ho Chi Minh City currently reaches over 308,325 m2, an increase of 16,200 m2 compared to the previous quarter.
In the coming time, Ho Chi Minh City will receive many new sources of supply when a series of offices for rent are completed and put into operation. The fact that supply is continuously increasing and demand is decreasing after a difficult economic period shows that office rental prices will be significantly affected.
According to experts from Knight Frank Vietnam, in the coming time, the vacant space in Ho Chi Minh City will reach a record number, up to 29% in the Grade A office segment. This is the result of increased supply in the second half of 2023. From there, office rental prices, especially Grade A offices, can decrease sharply by up to 20%, when the occupancy rate reaches 75%.
Many low-cost class C offices also cannot find tenants during difficult economic times.
Knight Frank also forecasts that Grade A office rents will decrease to US$53 per square meter per month by the end of 2023, US$48.50 per square meter per month by the end of 2024, and US$44.50 per square meter per month by the end of 2025. Vacancy rates will also increase to 29%, 24%, and 32% respectively, indicating a major shift in the city’s office rental market.
Class B offices face an even bleaker outlook, as this segment will be most heavily affected by the market trend of increasingly favoring tenants, resulting in fierce competition.
Grade B office rents are forecast to decrease to US$28.50/m2/month by the end of 2023, US$26.50/m2/month by the end of 2024 and US$24.50/m2/month by the end of 2025. Vacancy rates will also increase to 14%, 17% and 20% respectively each year.
Many experts say that the office rental segment in Ho Chi Minh City is facing a difficult situation due to the wave of premises returns along with the supply continuing to increase sharply in the second half of 2023. While the supply is abundant, the number of office tenants is decreasing, leading to many leasing units having to compete fiercely with promotions and incentives to retain old tenants and find new tenants.
This difficult situation has also led to many beautiful premises with high rental prices in the center of Ho Chi Minh City falling into a state of vacancy, no longer being prioritized as before. More and more businesses are "abandoning" central premises to move to more distant districts or even suburban areas to rent cheaper offices. This "wave" of returning premises has not stopped yet and is expected to spread in the near future, until the rental price is adjusted to a level that businesses can accept, which certainly will not happen in the short term.
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