Demand driven by the owner-occupier in a new building

• Net absorption was about 29,900 sqm in 4Q22, driven by the relocation of Techcombank, a local bank, from a Grade B building to its own, newly built Grade A building. This building, which served as Techcombank’s headquarters, added 28,000 sqm to the total supply basket. Because the building is fully occupied by Techcombank, it had no effect on current vacancy.
• Small- to medium-size tenants looking to relocate and expand continued to drive the positive net take-up in the quarter. For example, Aurecon, an international construction and design company, relocated from Centec Tower (Grade B, 450 sqm) to Lim Tower III (Grade A). The Nexus, Hallmark, and The Mett are currently in the pre-leasing phase.

Existing supply remains tight while waiting for new completions

• Techcombank Saigon Tower was the only new building coming online in 4Q22, bringing the total HCMC Grade A office stock to about 320,100 sqm at end-2022. However, as this building was primarily for internal use, the active supply remained constant.
• Following the trend of asset enhancement in ageing buildings, Grade B buildings, such as Lim I, may be renovated to compete with Grade A buildings in future quarters. The CBD’s availability of Grade A space continues to tighten, with only about 12,600 sqm (or 4% of total stock) available. Tenants looking for large, contiguous space will have to wait a year for new supply.

Net effective rent relatively stable across Grade A buildings

• Overall rents increased marginally by 0.3% y-o-y at USD 47.8 per sqm per month. Rent stability q-o-q despite a low vacancy rate was attributed to cautious market demand as a result of macroeconomic uncertainty.
• The investment market was subdued as investors were wary due to the investigation of notable local developers. However, investors have still kept an eye on clean assets, with yields steadily compressing to 6.5% by end-2022.

Outlook: Lower rents in new supply to drive down average rents

• Total stock is expected to increase in 2023, largely due to the completion of two new projects in the Thu Thiem area (84,800 sqm NLA) — The Hallmark and The Mett. Net absorption, mainly driven by new buildings, was revised downwards due to weaker demand and slower-than-expected pre-leasing activity.
• Despite the high quality, rents for the two new buildings remained affordable due to their new location. Lower-than-average rents in the new supply will likely drive down the Grade A average rent. For existing supply, rental rates tend to be sustained despite weaker demand in the near term. Financial services, banking, insurance and construction tenants should continue to lead future demand.