The Hanoi MarketBeat Q2 2023 report released recently by Cushman & Wakefield Vietnam provides insights into the office segment in Vietnam’s capital.

According to the report, no new supply entered the market in the second quarter of this year. In the first half, a total of 21,500 sq m of office space was added, from Lancaster Luminaire (Grade A) in Dong Da district. In line with decentralization, Grade A and B supply is mainly located in non-CBD areas, and is 6.2-fold higher than in the CBD. Total supply of Grade A and B is estimated at 1.6 million sq m, up 2.7 per cent year-on-year.

Among sub-markets, the Secondary sub-market (including Ba Dinh, Dong Da, Thanh Xuan, Hai Ba Trung, and Tay Ho districts) accounted for 44 per cent of Grade A and B supply, with the entry of new and high-quality buildings over the past three years.

Recent projects in the past year have been absorbed slowly as office demand is constrained by ongoing economic hardship. Grade B rents were up 3.7 per cent year-on-year thanks to the entry of new high-quality supply as well as recent renovations at some buildings.

Meanwhile, the performance of Grade A projects remained relatively stable amid economic instability, as this sub-market is supported by reputable tenants who are more financially secure and thus can afford renewal / new lease / expansion at these premium buildings. Some tenants in Logistics and Technology at Grade B projects also tend to relocate to Grade A or to their own buildings. Newer and higher-quality supply with more availability in non-CBD areas has been attracting major tenants to this sub-market, pushing occupancy at Grade A buildings up 3.7 per cent year-on-year.

In the future, new office space supply will mainly come from non-CBD sub-markets, with projects launched in 2023 such as Lotte Mall Hanoi (20,500 sq m), 36 Cat Linh (12,200 sq m), Intracom Riverside (24,130 sq m), BRG Diamond Park Plaza (32,870 sq m), as well as buildings set to open in 2024, including Heritage West Lake (18,180 sq m), My Dinh Pearl (27,000 sq m), Gelex Ly Thai To (12,000 sq m), and Taisei Hanoi Office Building (22,480 sq m).

By 2026, Grade A supply is expected to increase by 23 per cent compared to 2022. Hanoi will welcome a total of nearly 75,000 sq m of new Grade A supply in 2023 and 12,000 sq m in 2024. No foreseeable projects will be completed in 2025. In 2026, one new premium project is expected to enter the market in the west of Hanoi, adding 47,100 sq m of premium office space.

Vacancy at the end of 2023 is expected to go up as more supply enters the market this year while demand remains stagnant. This rate is expected to ease throughout the 2024-2026 period on the back of economic and demand recovery, to stand at about 24 per cent in 2026.

Grade A rents are likely to grow by 2.6 per cent year-on-year in 2023 along with new and high-quality supply with above-average rents, then remain relatively stable in 2024. High vacancy rates and rising competition from new premium supply are likely to make developers more cautious when setting asking rents. Growth of 1.3 - 1.4 per cent year-on-year is expected in 2025-2026 as the market stabilizes.