Office market faces difficulties until the end of 2020

New rental area in both Hanoi and Ho Chi Minh City is negative

According to Savills, the office market in Vietnam is a market of landlords/investors, in which Hanoi and Ho Chi Minh City are typical representatives with the most dynamic office market.

During the Covid-19 pandemic from the beginning of the year up to now, landlords/investors keep rents unchanged and take actions to support lessees by reducing rents in the short term and negotiating terms that are suitable for both parties.

Neil MacGregor, General Director of Savills Vietnam commented: “The impact of the epidemic on the office market is not great, we do not see a sharp decrease in office rents, perhaps a slight but unsignificant decrease".

“The market starts to see landlords/investors offering short-term incentives to lessees, such as 10-20% rent reduction in a given quarter or extended period of frer service fees - these actions can be assessed as unprecedented," said Neil MacGregor.

Also according to Savills, under the impact of the pandemic, in the second quarter, the market begans to witness a shift of lessees to reduce rental costs such as reducing area and moving to buildings with lower rents.

Notably, the additional lease area in the second quarter of both cities recorded negative. However, investors have been more flexible in applying many preferential terms to support lessees and maintain operations.

While landlords/investors of low-rise buildings quickly take actions, landlords/investors in luxury buildings handle requests for support on a case-by-case basis, primarily providing short term solutions for existing lessees.
 

In the last coming months of the year, the office market will continue to face challenges when demand decreases and the vacancy rate is expected to increase further.
 

In the last months of the year, the vacancy rate is forecasted to increase

With the second wave of Covid-19 outbreak starting in July, Savills said the office market would continue to face challenges as demand declines as lessees seeked to tighten spending and considered working practices in offices, which led to an expected increase in vacancy rate in the second half of the year.

In the long term, Savills believes that Vietnam is still the best destination in Asia. Compared to major cities in the Asia Pacific region, the office market in Ho Chi Minh City and Hanoi is considered a potential market and recovers quickly after the pandemic.

Explaining this reason, Ms. Vo Thi Khanh Trang, Head of Research at Savills Vietnam, said that while Grade A office rents of most of the studied cities reduced, for two Vietnamese cities, rents kept stable in Hanoi and increased in Ho Chi Minh City.

In the ASEAN region, the rents of Ho Chi Minh City and Hanoi rank only behind Singapore. Ho Chi Minh City has the best performance in the region with a capacity of  96% and increase of 4% in rents compared to the same period last year. Furthermore, high-quality office space tends to attract foreign lessess, so interest in Grade A will increase proportionally to FDI inflows.

Ho Chi Minh City and Hanoi continue to attract FDI and are in the top 5 provinces with the highest FDI, even in the first months of 2020 under the impact of Covid.
FDI inflows are expected to be increased after the pandemic when a series of Free Trade Agreements have been signed in time, and most recently, the European Union (EU) - Vietnam Free Trade Agreement (EVFTA) took effect in August 2020.

On the macro aspects, Ms. Trang also said that the Government and the State Bank of Vietnam had had many solutions to rescue the economy affected by the epidemic through supporting policies and financial aids.

In general, Ms. Trang assessed that the office market was expected to recover strongly after the Covid-19 pandemic crisis and especially in the second half of 2021 until early 2022, especially after the National Assembly election in Vietnam, etc.

According to Reatimes