According to a report by the Ministry of Construction, in the fourth quarter of 2023, office rental prices in major cities are expected to decrease by 9-22% compared to the previous quarter. At the same time, the situation of returning premises and the trend of moving offices from the central area to the surrounding areas are also increasing.
In Ho Chi Minh City, the situation of returning premises and moving offices to the surrounding areas of the city center increased compared to the previous quarter. This led to the occupancy rate of some offices in central districts such as Tan Binh and Phu Nhuan increasing to 15-25%. To cope with this situation, many buildings had to increase incentives, reduce rental prices or give more time for each specific contract.
Office vacancy is increasing in central districts.
According to CBRE research, 2023 will be the year of the highest growth in office supply in Ho Chi Minh City since 2019, with nearly 170,000m2 of new leased area completed, mainly in Grade A office projects with favorable locations. In the whole year of 2023, Ho Chi Minh City recorded nearly 80,000m2 of absorbed office space, and more than 90% of this area came from 4 newly completed Grade A buildings.
However, in the past year, relocation transactions still accounted for a large proportion of nearly 48%. Most of these transactions were aimed at moving to newer, better quality offices with competitive rental rates. Accordingly, the vacancy rate of Grade A projects still increased by 12.5 percentage points to 18.6% and Grade B increased by 1.4 percentage points compared to the previous year to 10.1%.
Similarly, in a recent report by the Vietnam Association of Realtors (VARS), it was also stated that the occupancy rate of office buildings has decreased and is facing the prospect of oversupply in the coming period. The reason is that the market has many new sources of quality supply while old office buildings are not proactively renovated and upgraded; the wave of businesses returning premises has increased sharply, especially at the end of the year due to financial difficulties.
In addition, the habit and trend of working remotely as well as the situation of small-scale businesses paying for premises, looking to rent apartments and private houses at low costs to save costs also significantly affect the occupancy rate of office buildings.
The shift from downtown to new office buildings has also led to a drop in rents.
Regarding rental prices, VARS believes that prices will continue to remain stable, even increasing slightly in new, high-quality office buildings or in renewals of previous contracts.
In Hanoi, asking rents for Grade A offices range from 25-50 USD/m2/month, with service fees ranging from 4-8 USD/m2/month. Asking rents for Grade B buildings range from 12-28 USD/m2/month depending on the area. Overall market rents increased slightly, 4% year-on-year, due to new supply being mainly high-quality Grade A offices.
In Ho Chi Minh City, Grade A office rental prices range from 35 to 70 USD/m2/month. Grade B office rental prices range from 20 to 35 USD/m2/month. New supply is mostly from Grade A buildings, with green office certification, attracting high-quality tenants from the finance, banking, technology sectors, especially foreign enterprises.
However, if the office space return situation continues to increase, it will lead to a decline in rents, especially in older office buildings. That will certainly happen in 2024.
Therefore, office building leasing businesses should study and create a mechanism to allow the conversion of office functions to housing, prioritizing the affordable housing segment, both to reduce pressure from the imbalance between supply and demand in the office market and to create additional housing supply that is increasingly scarce.
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