APPD Market Report Article
Ho Chi Minh CityAugust 26, 2022
Trang Le, Head of Research, Vietnam
Demand recovers slightly, especially for new buildings
- In 2Q22, net absorption in the Ho Chi Minh City Grade A office market improved slightly, reaching 100 sqm, due to attractive leasing policies in new buildings such as Lim Tower 3. In addition, the IT/tech and banking/finance sectors continued to drive demand for new transactions in the quarter.
- On the whole, the COVID-19 pandemic continued to pose a risk to economic growth, resulting in the downgrade and early termination of several tenants in existing buildings.
Limited supply delivery and tight vacancy characterise 2Q22
- No new projects across Grade A & B were completed in 2Q22, leaving the total stock unchanged. Only three Grade C buildings in District 2 & 3 were put into operation, adding 10,200 sqm to the active basket.
- Overall, the vacancy rate in the Grade A market remained relatively stable at 7.1% in 2Q22, decreasing -70 bps y-o-y. However, there are very few buildings that could offer more than 1,000 sqm of NLA contiguous space.
Rents remain resilient while yields compress further
- Grade A rent continued to be stable for the fourth consecutive quarter, slightly decreased by -0.5% y-o-y as landlords prefer to keep favourable occupancy rates amid the economic uncertainty. To buoy demand post-pandemic, some buildings still consider rent concession policies, with a variety of promotions and incentives offered to tenants on a case-by-case basis.
- Investors have been looking for investment opportunities since the office market is stabilising, leaving it ripe for investment post-pandemic. As a result, the Grade A market yield contracted further to 6.9%, down by -13 bps q-o-q and -50 bps y-o-y.
Outlook: Recovering economy to support rent and capital value growth
- Supply additions in the Grade A basket will remain tight until Techcombank building opens on Le Duan avenue in 4Q22. However, the building should be mostly for self-use, and thus may not impact the rental basket of the market in 2022. Little Grade A stock is likely to be available to prospective tenants.
- With many signs of economic relief in sight, overall Grade A rent is expected to increase slightly to USD 47.9 sqm per month by end-2022. Demand will primarily be driven by technology and manufacturing sectors. The tight market for both available space and investment opportunities is anticipated to support capital value appreciation.