Hanoi office market: Rents increase, demand moves

Following the trend of moving from the center to the west of the city, according to Savills Vietnam's forecasts, the Grade A office market in Hanoi is likely to increase about 7% per year, within 2 -3 years. Demand trends also changed.


Grade A thirsty bow


The Hanoi office market in the last two years has maintained an average capacity of about 93%. In general, the Grade A office segment does not have many options except a new building is put into operation.


According to Savills, current Grade A buildings in the CBD are all old and lack modern facilities, and the infrastructure does not expand.


While the high-end office has a strong attraction to foreign tenants, interest in Grade A is expected to continue to increase amid strong developments in FDI and M&A. However, tenants in the central area, if they want to use a large area, they must divide floors and not have the same floor space.


Compared to TP. HCM and countries in Southeast Asia, Grade A office rents in Hanoi are at an average, with 42 USD (about 980,000 VND)/m2/month central area. Compared to the domestic market, Hanoi office ranked third in terms of rent and capacity.


The average rent for the whole office market is 31 USD (about 720,000 VND)/m2/month, Grade A rent in the central area is about 55 USD (about 1.3 million VND)/m2/month (included including service charge), the rent of Grade A outside the center is about 35 USD (about 815,000 VND)/m2/month.


Currently, the supply of Grade A apartments is modest, about 500.00 m2 of floors, out of 1.8 million m2 of floors, less than 20% of the area. The number of new buildings is not much. Recently, only Thai Holding Tower with a scale of 24,000m2 of floor provided the market.


Do Thu Hang, Head of Research and Consultancy Savills Hanoi, said that when the area and utilities integrated with Grade A offices in the CBD did not meet the needs of foreign tenants. Having been expanding investment in Vietnam, the supply and demand of Grade A offices has tended to move to the West. In recent years, this area has been considered the "capital" of the office market with many buildings such as KeangNam, Twin Tower...


Grade A office rents will increase 7% in the next 2-3 years.


According to a representative of Savills, the rental capacity in the western area of Hanoi has also been high. By this time, the Grade A office market in the west of the city has the opportunity to close the rent gap with the central office market.


For Grade B offices, Savills said that the average rent of the whole market reached USD 18 (about VND 420,000)/m2/month. Occupancy rate reaches 94-95%, the highest in the segment. The reason is that the total supply accounts for a large proportion, the new supply has remained stable.


Supply in the CBD in the near future is very limited, while in some urban districts and the west continue to have new supply from Capital Place project providing 94,000m2 floor to the market; Tay Ho area with Lotte Mall project is under construction, expected to be operational after 2021.


Ms. Hoang Nguyet Minh, Deputy Director of Commercial Leasing Department of Savills, said that demand for Grade B will remain high due to more affordable rents and reasonable office quality compared to rents.


Predicting the office market in the near future, Ms. Minh said that the central area continues to maintain the shortage of leased area and future supply. Tenants are moving from the old CBD area (Hoan Kiem) to new economic areas - inner city and west. The investor continues to hold the bargaining advantage. Most tenants sign a three-year contract and will soon expire. At that time, the tenant who wants to extend the contract will have to accept the price increase and restrict the right to negotiate the lease terms.


Rent will increase by 7%


In addition to the shift in supply from the CBD, according to Hang, the trend of demand and supply has changed.


Savills analysis shows that, from 2017-2019 tenants were the leading financial, banking and insurance businesses, followed by manufacturing, information technology, real estate, public administration... Currently, the trend of tenants is startup companies are on the rise.


The fastest change in demand, according to Hang, is the co-working space is accounting for 50% of the rental buildings. This can be considered a "transformation" of the Hanoi office market.


Ms. Hang said that currently tenants occupy over 1,000 m2, the number accounts for 10%, but they account for 95% of the floor area. From 2017 to the present, the ratio between Vietnamese and foreign tenants in the A&B segment has not changed much, accounting for 43% and 57%, respectively.


However, foreign tenants tend to prefer high-end spaces with higher rents. As of the first six months of 2019, 68% of the leased area in Grade A buildings is occupied by foreign tenants. Meanwhile, Grade B occupiers only accounted for 40%.


Regarding the future of Hanoi office real estate, Ms. Hang said that the working space at the central office buildings is limited, so the tenants continue to look to the West.


Sharing the same view, Ms. Minh said that, in terms of infrastructure, the central area is unlikely to be upgraded within the next ten years. Meanwhile, the development projects of the overhead train system, the upgrading and expansion of ring roads 2 and 3 are concentrated in the inner and western areas.


Regarding rental rates, representatives of Savills forecast that Grade A and B offices will continue to be vibrant. In which Grade A with limited supply in the center, customers will head to green buildings, have good utility services, integrate 4.0 technology, convenient transportation... so the price increase is about 7% within 2-3 years.


However, the highlight for the office market today, that is whether in the A or B segment, the new quality is something that can attract both domestic and foreign customers.


Recommendations for investors and customers, according to Savills experts, real estate businesses need to have specific studies, which areas are needed, and which locations can attract tenants. That is the problem that investors have to consider to achieve the highest rental efficiency.


According to Tam An