APPD Market Report Article
HanoiAugust 26, 2022
Trang Le, Head of Research, Vietnam
Net absorption surges in 2Q22 as the market recovers
- Net absorption increased in 2Q22, reaching 10,100 sqm as businesses resumed activities amid the new normal, and lease transaction numbers recover.
- The majority of new enquiries came from the Ba Dinh and Cau Giay districts, which are home to a number of buildings with high vacancy rates. One of the most notable transactions was recorded in Capital Place, where a tenant in the banking system leased 1,200 sqm. Banking and e-commerce were the main market drivers in 2Q22, as these are the sectors that could recover quickly after the epidemic.
No new Grade A supply recorded
- In 2Q22, there was no new supply of Grade A offices. The market is expected to stay muted until 4Q22, as two boutique Grade A buildings are scheduled to open by end-2022.
- The vacancy rate in Hanoi’s Grade A office market in 2Q22 is 17%, down by 1.8% q-o-q and by 2.3% y-o-y, mostly thanks to the strong take-up in Capital Place, PVI and Lotte Center buildings. In addition, most long-standing buildings maintained their occupancy level.
Rents increase compared to 1Q22
- In 2Q22, net effective rent in Hanoi Grade A Office reached USD 28.0 sqm per month, an increase of 4.2% q-o-q and 4.4% y-o-y. This increase was due to the high asking rent in Capital Place, the only Grade A office building in Hanoi’s centre to receive a LEED Certificate. Meanwhile, other buildings maintained stable rental rates in order to fill the remaining vacancy.
- Capital values increased by 9.7% y-o-y in 2Q22, while yields compressed further to 7.4% as investors remained optimistic about the long-term market outlook and looked for investment opportunities.
Outlook: Two new Grade A projects set to enter the market in 4Q22
- The Hanoi office market is expected to remain muted in 3Q22 before welcoming Techcombank and Lancaster Luminaire in the CBD area in 4Q22, bringing the total NLA of Grade A offices to 598,400 sqm by end-2022. Given the expected high rent in new supply and the rising asking price in Capital Place, the market average net effective rent is anticipated to increase by 8.8% y-o-y by end-2022.
- Although net absorption in the Grade A market is expected to improve, the vacancy rate is expected to rise to 17.8% by end-2022 due to the new supply. Tenants with strong business plans that are relevant to the new market conditions, such as banking, e-commerce and real estate, are likely to continue to be demand drivers.