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Tenants winning in office for lease segment

Released at: 11:40, 07/12/2015

Tenants winning in office for lease segment

Mr. Alex Crane, General Manager of C&W Vietnam, tells VET about the performance of office for lease in 2015 and his forecasts for 2016.

by Thu Hoang

Mr.Alex Crane

■ What are your comments on the overall performance of office for lease in Hanoi and Ho Chi Minh City in 2015?

There is much talk of a bottoming of the market in Ho Chi Minh City but I am not a believer in that just yet. To date (Quarter 3) take up in Grades A and B this year is only 45 per cent of the same period in 2014, so generally performance has been diminished, which has held off rent increases in real terms. 

Great deals remain available for the best tenants, although not for long! I will caveat the lower than expected take-up rate with the fact there has been reasonable performance in pre-leasing at Vietcombank Tower, of which a lower than expected proportion has been released to market, and Pearl Plaza. Both will enter our data in Quarter 4. While there is good take up, naturally both leave a vacuum of space across the city in other buildings which will need better absorption if we are to see rents rise.

Hanoi’s performance in terms of net absorption has been very strong compared to 2014, although a lot of this recorded information is from State entities, where there has been a trend of restructuring and relocation from a basket of properties that do not normally fall within our Grade A and B data range.

While the CBD remains relatively healthy in terms of occupancy, landlords have had to work hard to keep this and we have seen some surprisingly low rents being transacted. 

Interestingly, we have seen some huge savings for tenants on their lease renewal terms, which are often not as competitive as rents for new tenants moving into a building. In some cases we have seen equal or lower than other reported deals where a tenant representative wasn’t being used.

■ What were the most notable trends and performances of office for lease in the two cities during 2015?

We have noticed a trend in both cities of occupiers offering a range of types of workspaces, creating efficiencies in the operation and use of their real estate. A trend of moving toward “Activity Based Working” (ABW) or “Hoteling” is very apparent. In many cases this can reduce required space by as much as 20 per cent, but it is absolutely imperative it is done correctly. Simple hot-desking is not the answer.   

Even where ABW is being used, occupiers are spending more time and money on designing their space more around the workforce and this is a direct correlation of the war for talent that is currently unfolding in many sectors. The best staff are looking for a workplace that is interactive and encourages collaboration. Buildings need to be smarter to accommodate the diversification of workplaces, whether that is the physical arrangement, the hours of use, or in-house facilities.

A more market driven trend is a culture of short-term subleasing or assignment of existing leases. This will continue as wider market vacancy falls, particularly in Ho Chi Minh City. It is not a sophisticated market yet as foreign companies still wait on legislation to allow formal subleasing, but it has started and is sure to continue. 

Both landlords and tenants need to become more familiar with the opportunities and risks in this type of commercial real estate trading as it matures, as it can be a complex and arduous process. If done correctly, it can give a business greater flexibility and uncover opportunities for early restructuring or repositioning of a business. 

■ What are your forecasts for the performance of the office for lease market in 2016 as Vietnam integrates further into the global economy with the signing of the TPP and the EU - Vietnam Free Trade Agreement (EVFTA)?

Hopefully the real benefits of the TPP and EVFTA will come in 2016, but there is some way before the agreements are signed and, of course, implemented. 

Overall they will positively affect trade/manufacturing and retailing, which has associated effects for the office occupier markets and subsequently services or finance industries etc., but this will take time to filter through into any kind of “peak” take-up, which I don’t forecast immediately. If we were looking at industrial and retail, then yes, there will be an improvement in activity at a faster rate.    

The performance in 2016 will be more driven by supply - a lack in Ho Chi Minh City and too much in Hanoi - so different trajectories in rents in both will continue. Building-by-building, quality will be the key factor in 2016, not only in construction but management and operation.  

The bigger these multinationals are getting - and hopefully continuing under the FTAs - the more demanding they are getting in terms of building performance, service, and quality, as are their best staff. Landlords should be investing or re-investing now to future proof and remain competitive and in tune with their customers.

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