Grade A and B to head upwards as vacancies fall and city's economy in better shape, Savills reports.
Rental costs in Ho Chi Minh City’s office sector continue to head upwards thanks to the city recording strong GDP growth and foreign direct investment (FDI) inflows, according to a report from Savills released on December 22.
On the back of limited vacancies and improved macro-economic conditions, some landlords in the city are set to increase rentals for Grade A and B space. Buildings with large contiguous floor plates are now in short supply. Large occupiers will need to be mindful of lease expiry and engage early with their space planning. Several Grade A landlords are reportedly planning to increase rentals despite the existing market gross rental running at $46 per sq m per month.
In the third quarter of this year the average occupancy in Grade A and B was 93 per cent, up 2 percentage points year-on-year. Grade A saw the best performance, at 96 per cent - the highest for the last six years. Ho Chi Minh City’s existing supply is limited to only nine buildings, including the entry of Vietcombank Tower in the third quarter. The newest Grade A projects - Saigon Center Phase 2 and Deutches House - won’t enter the market until the third quarter of 2017.
The report also pointed out that demand for Grade A and B office space mainly comes from foreign companies, accounting for 76 per cent of the leased area, while in Hanoi it is 66 per cent. Most tenants are in the banking, finance, and insurance sector.
By 2017 new Grade A and B supply in Ho Chi Minh City will be approximately 190,000 sq m, of which 77 per cent will be located in the central area. District 1 remains the most sought-after location and competition is expected to intensify. Districts 3 and 7 are emerging as alternative options for tenants who want to acquire large office space with lower rentals. Future prime locations such as Thu Thiem are now under development by major local and regional players. This will alter the cityscape significantly, with good infrastructure and connections, quality amenities, and a pleasant environment to live and work in.