Grade A office demand grapples with economic headwinds

• In 4Q23, the net absorption of Grade A office space in Hanoi remained stable at 3,800 sqm. The primary contribution in the CBD came from the newly completed Diamond Park Plaza. The demand was mainly from the banking and financial sector, notably with SeABank opening a new branch on the first floor of Diamond Park Plaza. 
• For full year 2023, the Grade A net absorption in the CBD reached 20,100 sqm, predominantly due to new high-quality supply and consistent demand from tenants looking for premium Grade A offices. A similar pattern was seen in the Non-CBD, with a net absorption of 3,300 sqm recorded for the year.

The CBD witnesses new Grade A supply

• The completion of Diamond Park Plaza building in 4Q23 added 29,462 sqm to the market and raised the total Grade A office space in the CBD to 333,100 sqm. The 36 Cat Linh building experienced slow construction progress in the quarter, with its expected completion time moving to early 2024. In the Non-CBD, no new supply was recorded, keeping total stock at 168,700 sqm.
• Given the new space added by Diamond Park Plaza, the vacancy rate in the CBD reached 26.9%, a 7.0% increase q-o-q. In contrast, the vacancy rate in Non-CBD saw a slight decrease q-o-q, reflecting ongoing market demand and the potential for long-term growth, even amidst recent economic challenges.

Overall market rents see a slight increase

• In 4Q23, net rent in the Hanoi office market was stable with a marginal increase of 0.1% q-o-q across the market. This reaffirmed the market’s stable rents in the face of economic headwinds and competition from new buildings offering tenant incentives.
• In the CBD, net rent decreased slightly by 0.7% q-o-q to USD 32.4 per sqm, per month, influenced by new projects with notable incentives in the early leasing stage. Meanwhile in the Non-CBD area, net rent remained unchanged q-o-q.

Outlook: Rising competition with consistent influx of new supply

• When completed in 2024, the 36 Cat Linh project will add 14,000 sqm of leasing space to the CBD, bringing the overall supply to 347,100 sqm. The Non-CBD area, meanwhile, expects a supply surge from the completion of The Heritage, Taisei Hanoi Office Tower and Shilla Hotel, pushing Grade A office space in this area to 264,200 sqm by year-end of 2024.
• The higher rent expected in new completions, of which 36 Cat Linh is the most notable, will likely help to push up market rents. However, rising rivalries as a result of continual supply entering the market could hinder growth to some extent.