Seen from the angle of developers, 2010 was a difficult year for landlords in the office sector as rents and occupancy rates fell throughout the year given a significant number of new buildings coming onto the market.

However, for tenants, 2010 was a great year as they had much room to negotiate with landlords for good deals. It is expected to see a busy and challenging year for landlords as the HCMC office sector will see a significant amount of new supply come online this year in addition to the current stock.

Colliers International Vietnam, a property services provider, has released a quarterly report saying that with some 214,000 square meters of Grade A office space, over 134,000 square meters of it occupied, and with another 80,000 square meters available for leasing, the Grade A market is experiencing competition not from existing Grade A stock but from new Grade B buildings.

Grade B buildings are offering good facilities in key locations with lower rent rates but more incentives, thus placing downward rent pressure on the Grade A supplier.

The average rent for Grade A, as of the end of the fourth quarter of last year, was around US$40 per square meter. However, this month the average rate has dropped to US$36 per with occupancy of about 80%, according to Colliers.

Strong competition has forced landlords to find ways to lure tenants into their buildings, offering incentives such as free parking, and rent exemptions for a certain period.

The downward pressure from Grade B buildings, with average rent between US$20 and US$30 per square meter, is forcing Grade A rent down. But the level has not reached US$32.55 on average as seen in late 2005, when the market was in the upswing.

“We thought we would see Grade A rental rates flatten and start to turn around in late 2010. In fact they have dipped even further,” Marc Townsend, managing director of CB Richard Ellis Vietnam (CBRE) said, adding Grade A developments that came online in the third quarter of last year had not been able to raise rents.

“If you were a tenant, a Vietnamese or multinational tenant looking for new office spaces, you had more choices, more opportunities and more time to make decisions,” Townsend commented on the market trend.

He, however, noted that last year saw more tenants look for more office space at lower prices. The property services firm received some 1,000 enquiries for office space in 2010 compared to 727 in the previous year.

The total net absorption for 2010 was some 227,000 square meters, some 50% above the 155,000 square meters of net absorption recorded in 2009, according to CBRE.

The company projected that absorption is expected to continue to grow in 2011 with some 250,000 square meters across all grades, when many local companies looking for professional working environments take higher quality space.

Townsend foresaw that HCMC office rents would continue to soften, particularly in the grade B market, given a significant amount of new stock besides the current supply. It is expected to see 280,000 square meters of office space join the market this year, and some 1.1 million square meters come on stream in the next three years.

He projected the Grade A office rents would come down to the same levels as other regional cities such as Shanghai and Beijing with US$31-33 per square meter per month. As the result, many landlords are having to compete with regards to commercial terms and incentives in order to attract major tenants.

Commenting on the market trend, Colliers says the overall sentiment for the Vietnamese economy remains positive even though it is facing some negative aspects. Companies are again tentatively thinking about expansion after two years of downsizing and consolidation.

The office market is set to remain a tenants market in the medium term, and developers will need to secure occupancy levels in their buildings to protect their own tenure.

Source: SGT