Supply constraints due to many factors
In the report on the office leasing market in the first 6 months of the year published by Savills Vietnam earlier, the occupancy rate was stable and reached a high level of 91%. It only decreased by 1% quarter-on-quarter after some small and medium-sized companies returned premises in class B and C buildings.
Savills Research also pointed out that Grade A office buildings performed best compared to other segments, with occupancy rates of up to 94% and rents reaching VND1.4 million/m2/month. Compared to other major cities in the region, in Q2/2023, Grade A offices in Ho Chi Minh City had low vacancy rates and higher rents than Jakarta, Kuala Lumpur and Bangkok.
However, when comparing the development potential of office rental, it can be clearly seen that this market in Ho Chi Minh City has a rather small supply scale. That creates a gap between supply and demand in the market in the current period.
Explaining this issue, Ms. Tu Thi Hong An - Senior Director of Commercial Real Estate Services, Savills Vietnam, said that the scarcity of new supply is partly due to difficulties in capital mobilization, especially in borrowing.
Ms. Tu Thi Hong An - Senior Director of Commercial Real Estate Services, Savills Vietnam.
In addition, there are objective constraints, such as adjustments related to fire prevention and fighting or other legal issues. Therefore, the market only accepts new supply slowly, leading to an imbalance in demand.
“The market is also largely shaped by demand from industries with large leasing proportions such as Information Technology, Logistics, Finance and Insurance, Manufacturing, and Real Estate. These are also industries that are volatile and sensitive to the general economic situation. Therefore, it can be said that the trends taking place in these industries are often also the general trends of the office market,” said Ms. An.
However, looking at the whole picture, the office market in Vietnam is a potential market with rapid growth and many new development trends in the industry.
New trends change the market
Through many studies and surveys, Savills Vietnam has recorded 4 prominent trends in the office segment in 2023 and the coming time.
Firstly, the trend of flexible (hybrid) working is becoming popular due to the impact of COVID-19 and advances in information technology. This creates flexibility for workers and shapes the office market. This model helps reduce office rental costs, allows for renting space according to demand and saves resources.
Second, businesses are moving their offices outside the financial center to reduce rental costs and improve working space. Meanwhile, the supply of Grade A office space for rent is being developed more outside the central area such as Phu My Hung Tower (District 7), CII Tower (Binh Thanh) or The Hallmark (Thu Duc City)...
Of which, more than 75% of office supply from the third quarter of 2023 to the end of 2025 in Ho Chi Minh City is expected to achieve green certification. This means that this type of office space will pay more attention to developing a healthy working space for tenants.
Third, office rental types are now focusing on providing services and amenities to meet the diverse needs of human resources. An office may have to accommodate up to 4-5 generations working together, each generation with separate needs.
According to a survey by Savills, there are differences in expectations among the four generations of workers. Converting the structure and layout of a traditional office to a modern office not only helps increase work efficiency but also creates opportunities for interaction and engagement of multiple generations of employees with the company.
Finally, the HCMC office market has shown its ability to adapt quickly to fluctuations in supply and demand. Savills notes a slight decrease in rental prices in the 2022-2023 period, as landlords flexibly adjust prices to maintain tenants and attract new ones. The flexibility in price adjustment shows the sensitivity in adapting to market fluctuations.
“Businesses are gradually changing the way they use their offices, focusing on reducing costs and meeting their needs. Optimizing workspaces, increasing remote working, and finding other flexible solutions are effective approaches,” said Ms. Tu Thi Hong An.
Office rental products are not simply just providing a place to work as before.
This expert also commented that the flexible office market is growing and purifying rapidly. Famous providers of this type such as Circo, Dreamplex, Toong are opening new areas, with occupancy rates of over 80%. This reflects the increasing demand for flexible workspaces, meeting the needs of the market looking for convenience and flexibility, especially in the context of rapidly changing working needs.
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