APPD Market Report Article

Ho Chi Minh City

November 29, 2022

Trang Le, Head of Research, Vietnam

0.4%

USD 47.8

Growth
Slowing

Strong leasing demand in Grade A buildings

  • Net absorption of Grade A office buildings surged to about 6,200 sqm in 3Q22. Leasing activity in the quarter was mostly driven by the banking, research & consultancy, law, and flexible space operator industries. Noteworthy international tenants included KBank, GroupM and Baker McKenzie.
  • The occupancy rate of many Grade A buildings has risen above 95%. A further reduction in the vacancy rate across Grade A buildings in the CBD resulted in some occupants shifting focus to high-quality buildings in non-CBD areas.

Vacancy rate hits its lowest level since 2019

  • With the exception of the Techcombank Sai Gon Tower at 23 Le Duan, which will mostly be used for the landlord’s own needs, Grade A active supply in the city is expected to stay the same until the end of 2022.
  • Total Grade A vacancy decreased to 5% in 3Q22, reaching its lowest level since 2019. However, when faced with upcoming high-quality supply, landlords of aged properties have begun to search for solutions for asset management and to renovate their buildings, to ensure that they remain competitive in the market.

High demand reduces need to offer rent-free incentives

  • Grade A rents in the city rose 0.4% q-o-q to USD 47.8 per sqm per month. Due to increased demand in the CBD, new buildings, such as Lim III, are now able to scale back their rent-free offerings. As the end of the year approaches, landlords are likely to lower the asking rent in order to attract tenants and meet their annual goals.
  • There were no Grade A office building transactions announced in 3Q22. Increased demand for quality assets across the market has pushed up cap value by 2.2% q-o-q. Investment demand remained strong, with both local and foreign investors exploring opportunities to acquire assets in good locations. The overall market yield declined by 12 bps to 6.62% in 3Q22.

Outlook: A new office cluster is anticipated in Thu Thiem

  • The new CBD in the Thu Thiem area is anticipated to become the next destination for Grade A office development, due to the completion of the Thu Thiem 2 Bridge, which connects directly to the current CBD. Two new buildings, including The Hallmark and The METT, in this area will contribute 84,833 sqm of NLA to total Grade A stock in 2023.
  • In the next year, major office leasing transactions are expected to focus on two upcoming towers, and this will likely pressure landlords to retain tenants. Tight supply until end-2022 and an uncertain global economy should keep rents stable q-o-q. Rents will likely favour tenants in 2023, and is projected to drop to USD 46.6 per sqm per month by end-2022, due to new and more affordable suppliers.

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

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