The total area of high-rise offices would reach 1 million sq.metres in the next few years, of which 60 per cent is located in District 1, according to Savills Viet Nam Ltd.

Meanwhile, the demand for offices for lease has dropped in the third quarter and continues to fall in the fourth quarter, according to Savills Viet Nam Ltd.

Rental prices are declining to stimulate demand however many high-sky office buildings for lease remain vacant.

The benchmark of office-for-lease prices has dropped by 30-50 per cent with prices in HCM City bottoming out.

The current ceiling price is $70 a square metre a month.

Kumho Asiana Plaza, a newly built commercial building that started operation at the end of the third quarter, has supplied 25,700sq.m for the market, making the supply of A-level offices for lease soar by 5 per cent.

The operation of Kumho Asiana Plaza in particular has caused the occupancy rate of A-level offices for lease to fall by 15 per cent, from 96 per cent to 81 per cent.

Several domestic and foreign firms are reducing business, production activities and employees due to the global slowdown.

Many real estate analysts forecast that the golden time of for-lease office buildings was over, but said that when the economy in Viet Nam improves, the price of commercial premises is certain to increase.

For-lease A-level offices prices, ranged between $60-100 a square metre a month in 2008, have now fallen to $40-70.

Similarly, office prices of B-level towers reduced to $30-35 a square metre a month from $40-45. Meanwhile, prices of C-level towers have reduced to $10-15 from $20-27 a square metre.

A director of an office building in Ho Chi Minh City’s District 1 said more clients were looking for leases toward the end of the year as their current contracts were about to expire.

He said many felt that prices were low and were willing to ink new contracts immediately, the director said.

Many landlords have said that after sharp declines earlier this year office rents have begun to stabilize.

According to the Vietnam office of the world’s largest real-estate broker, CB Richard Ellis Group Inc., overall asking rent across all grades in the third quarter posted the lowest decline of 2.9 percent since the second quarter of 2008.

With Kumho Asiana Plaza coming on stream in September, overall Grade A asking rent climbed to US$41.3 per square meter per month, an increase of 1.2 percent over the second quarter, CBRE said in its quarterly report.

Rock bottom?

Still, there are worries that office rents have not bottomed out yet. Experts forecast the local office market may remain weak for some time as the global economic slump continues to linger.

According to real estate services firm Jones Lang LaSalle, the pressure on exporters, financial markets and service providers will continue to affect local office demand next year.

Landlords said they once expected the government’s stimulus package to enable many local companies to expand their businesses and move into new offices. But few private firms benefited from the stimulus, adding only a slight boost to the office market.

An office building owner, who wished to be unnamed, said he had been unable to attract any new foreign firms this year due to the downturn.

“Most businesses here this year were already here last year. They’re just moving around town to places with lower rents.”

“Without a lot of newcomers, we’ve had trouble dealing with high vacancy rates,” he said.

Overall vacancy still stood at 17.5 percent in the third quarter, only down slightly from the previous quarter’s 18.1 percent, CBRE said in its report. Grade A vacancy alone stood at 26.3 percent, the firm said.

New supply

CBRE said 158,976 square meters of net floor area remains empty in Vietnam. Office supply is forecast to increase by another 134 percent by the end of 2010 across all grades.

Hanoi’s largest office complex, the 27-story Charmvit Plaza, will open in the first quarter next year. UK real estate service provider Savills estimated that more than 1.1 million square meters of office space would enter the capital city’s market in the form of 50 different projects over the next three years.

Meanwhile, future completions in HCMC include the Bitexco Financial Tower, Vincom Tower, BIDV Tower and Times Square, Jones Lang LaSalle said in its third quarter report.

“With new supplies scheduled for completion, coupled with the weakening a demand forecast for the next 12-15 months, we expect to see further downward pressure on rents,” the firm said.

Le Quoc Chinh, an investment manager at Hanoi-based IDJ Financial, said in an interview with the Vietnam Economic Times earlier this month that had it not been for the economic slump, the pressure on the market could have been even greater.

“Without the crisis, there would have been many office buildings, driving supply way up beyond short-term demand and making competition tougher,” Chinh said.

“The economic crisis has caused many investors to delay or even cancel their building projects. New supply has therefore been at least partly restrained.”

Realistic strategies

CBRE said in an increasingly competitive market, “new landlords are making more creative offers to try overcome tenant’s financial constraints.”

Many landlords, instead of offering lower rents and hence devaluing their building, choose to give more perks to tenants, Tuoi Tre newspaper reported.

For example, occupiers can have two months free of payment to decorate their offices. They are now required to pay only one month of rent in advance, instead of the usual three-month down payments.

ASIA PACIFIC OUTLOOK

According to Jones Lang LaSalle, overall leasing demand in Asia Pacific remains weak but is starting to improve as occupiers take advantage of major rent corrections.

“In most office markets, rents are starting to stabilize following typical falls of 40 to 60 percent from their peak,” the firm said in a global market report this month.

“Leasing conditions will continue to be favorable to occupiers until at least mid-2010 in most markets, with supply-constrained markets likely to see the earliest turnaround in rents,” it said.

However, according to real estate management companies, the office-for-lease market has not been able to recover soon and there remain various difficulties ahead.

The Gemadept building in Le Thanh Ton street, district 1, HCM City that is an A-level office building was put into use in early 2009, the hard time of the market. The rental price of that building was around $50/m2/month.

Compared with the rental price of A-level-offices of a building in Le Duan street, district 1, HCM City at the peak time, $100/m2/month, the rental price of the same kind of offices after two years fell to 50 percent.

It can be said that the rental price of the Gemadept building is the new price level of A-level offices. In recent years, HCM City has had less new A-level offices. In addition, the occupancy rate of A-level offices is always over 95 percent. Although the office-for-lease market has seen strong changes, A-level-office segment has not been impacted much. By the third quarter of 2009, the average A-level office rental price in HCM City still reached $63/m2/month (service charge is included).

As for B-level offices, the rental price fluctuates around $30-35/m2/month. Although the rental price has sharply reduced, the non-occupancy rate of B-level offices is relatively high, up to 60 percent in some places.

Regarding C-level offices, the lowest rental price is $12/m2/month. Many C-level offices in Tan Binh, Phu Nhuan districts nearby Tan Son Nhat airport offer the rental price of some $15 to $19/m2/month accompanied with some conditions and many promotions.

According to real estate management companies, Vietnam’s office rental prices are still 10-20 percent higher than that in Southeast Asia. In the coming time, the rental prices of A and B-level offices may strongly drop. C-level offices still may further reduce because of high increase in supply.

Notably, when the office-for-lease market is changing in a positive manner, the occupancy rate is also slightly rising. Savills Co said that “the average rental price for all districts and levels did not change in the third quarter of 2009 and the average occupancy rate slightly inched up by 2 percent.”

Regarding A-level offices, Kumho Asiana Plaza building that was put into use at the end of the third quarter launched supply of 25,700m2 of floor areas, boosting the supply of A-level office by 5 percent. Putting Kumho Asiana Plaza into operation dragged the occupancy rate of A-level offices down by 15 percent to 81 percent from 96 percent. As for all three levels of offices, the non-occupancy rate is less than 20 percent. Namely, the non-occupancy rate is 19 percent for A-level offices, 14 percent for B-level offices and 16 percent for C-level offices.

Speaking about demand, Savills said that “demand has significantly changed but with a positive sign. In the third quarter, demand slightly reduced and such a trend would continue in the fourth quarter.”

Although there are optimistic signs from the office-for-lease market, in general and long term, lessees that has increased over the last time are not new lessees in the market but existing lessees who take advantage of cheap rental prices to move their offices from suburb areas to the central area or upgrade their offices.

Given the market prospects, Savills said that in some next years, total office areas to be put into use may reach one million square metres. Thus, it can be seen that supply of office is still rising, which will create high pressure on output. The current low price level would hardly change in the upcoming time.

Indochina Plaza Hanoi was built on 1.6 hectares, including two apartment buildings, one office tower and a four-storey trade centre.

Indochina Land has cooperated with Shanghai-based Benwood Studio, Hong Kong’s Gravity Partnership and PTW Vietnam to make architectural design for this project.

Indochina Plaza Hanoi will provide 30,000 square metres of retail space, 18,000 square metres of Grade A offices and 390 high-end apartment buildings to meet the demands of the customers.

“The worst is over for landlords,” Brett Ashton said, adding that the balanced market would soon return.

Ashton raised the point at a business dialogue held by the European Chamber of Commerce in Vietnam (EuroCham) in HCMC on Thursday for him, Fred Burke of Baker & Mckenzie, and Dominic Scriven of Dragon Capital Ltd. to share their views on Vietnam’s economy with representatives of both local and foreign companies.

Ashton said rents of Grade A offices continue to decline but at a slowing pace, and put the average rent and service charge at US$50 net per square meter by the end of the first quarter of 2010. Meanwhile, the rent of Grade B offices is leveling off.

Ashton said the monthly Grade B rental had been more than halved from the peak level in March 2008, from around US$60 per square meter to some US$23 per square meter while the Grade A rate had gone down from nearly US$100 to US$60 and then US$50 net.

Ashton told the Daily after the event that the monthly rents of Grade C offices continued declining to US$12-15 per square meter and Grade B to US$18-23 per square meter, which he said was still higher than Grade A in Bangkok.

He said there were good signs for Grade A and B, and that space at Kumho started to fill up. He noted Kumho Asiana Plaza was the latest operational Grade A office building in HCMC and there would not be any new project of this type running in at least two years.

Ashton predicted the Grade A rental would start to increase in early 2011 at a steady pace and the Grade B rate would take longer time for recovery because of ample supply.

Ashton said there were now six Grade A and 31 Grade B buildings in HCMC with combined space of 475,000 square meters. He forecast the office supply in HCMC could double in the next three years.

Asked about the recovery of Vietnam’s real estate market in 2010-2011 as experts forecast, Ashton said the residential segment had already picked up in Hanoi and Danang, and good projects in HCMC fared well.

He called for developers to pay more attention to design as buyers were getting smarter and being choosier.

“Developers need to understand who they are building for, the market, and competition… Selling has been more difficult,” Ashton said.

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