APPD Market Report Article

Ho Chi Minh City

December 1, 2021

-0.4%

USD 47.6

Growth
Slowing

Attractive leasing policies push up demand

  • Despite negative net absorption recorded in four buildings that had tenants terminate, or relocated early to save costs, overall Grade A net absorption remained positive in 3Q21, at 195 sqm. Newly leased spaces in new buildings, where landlords offered attractive rental concession programmes to entice tenants, have outweighed the negative performance and led to market stabilisation.
  • Notably, despite the fact that the transactions were completed in 3Q21, most must wait until 4Q21 when the lockdown is lifted before taking control of spaces, and landlords can only start collecting rents after the property is handed over. Technology, real estate and finance tenants continued to lead the market demand.

Delayed supply owing to the fourth wave of COVID-19

  • In 3Q21, the market recorded no new supply in all grades. Given the extension of lockdowns in HCMC during in the quarter, the grand opening of two Grade B office buildings, scheduled to open in 3Q21, have been pushed back to 4Q21.
  • The vacancy rate slightly decreased by 7 bps q-o-q to 7.7% in 3Q21, owing to large lease deals in newly completed buildings, but remained at a low level.

Rents remain resilient

  • Grade A rent slightly decrease by 0.25% q-o-q, and stood at USD 47.8 per sqm per month, driven by rental discounts applied to the newly vacant space in Diamond Plaza. Rents have remained resilient in most buildings with limited new transactions recorded in the quarter.
  • Under the lockdown period, no new transactions were recorded in the quarter. Despite the lingering pandemic, capital value increased by 1.46% y-o-y and yield compressed to reach 7.1% in 3Q21 as investor interest in the market remained intact, supported by restricted supply and potential long-term growth.

Outlook: Rent to remain stable despite expected lower demand

  • There will be no new Grade A supply additions and there are only a few Grade B buildings expected to complete in the coming 12 months. The Grade A market will likely remain constrained as no new additions are anticipated, and all existing buildings have high occupancy rates of more than 80%.
  • Due to the pandemic, demand in HCMC is projected to remain low. In 4Q21, early terminations, size reductions, and even downgrades will become more prevalent. However, because the market is projected to remain tight with no new Grade A buildings expected to enter the market until late 2023 and most existing buildings remaining fully occupied, rents are expected to hold steady or slightly decrease.

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

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