APPD Market Report Article

Ho Chi Minh City

August 26, 2022

Trang Le, Head of Research, Vietnam

-0.2%

USD 47.6

Growth
Slowing

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.

Note: Ho Chi Minh City Office refers to Ho Chi Minh City's Grade A office market.

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