Vietnam’s office space sector stands out for its optimism in Savills’ 2023 Office Market Forecast, surpassing regional markets. Both Ho Chi Minh City and Hanoi have experienced a surge in premium office projects, boosting competitiveness and leading to increased vacancy rates in older projects. Despite global post-pandemic challenges impacting the office market, Vietnam has demonstrated resilience, defying diminishing demand trends seen in other regions, which can be attributed to factors such as a shift in supply sources, tenant resource reassessments, and evolving needs.
“The office market has bucked the global trend and maintained strong occupancy rates, with steady rental growth,” said Mr. Neil MacGregor, Managing Director of Savills Vietnam. “Indeed, Ho Chi Minh City’s office market stands out as one of the best performers in the Asia-Pacific region.”
In the third quarter of 2023, Ho Chi Minh City’s office market experienced a 3 per cent quarterly and 4 per cent annual increase in supply, propelled by four new projects, notably in the Thu Thiem urban area, contributing 90 per cent of market share. The addition of Grade A projects like The METT and The Hallmark in the area, along with city center contributions such as the renovated Grade B project The Waterfront Saigon and the new Grade C project L’MAK The Signature, significantly boosted the market’s net leasable area (NLA).
Despite a 1 per cent decline in overall occupancy rates from the previous quarter and a 3-point annual decline, the market maintained a robust 90 per cent occupancy level. Average rental prices saw a quarterly increase of 4 per cent and an annual surge of 7 per cent, reaching VND771,000 ($31.78) per sq m per month. Six new projects are expected in the fourth quarter, including The Nexus and VP Bank Saigon Tower, with over 80 per cent of the future Grade A and B supply obtaining green certifications.
“The positive market activity is driven by high demand for new Grade A projects,” said Ms. Giang Huynh, Deputy Director, Head of Market Research and S22M at Savills Vietnam. “After years of scarce supply of high-end office space, the new supply has attracted companies in the FIRE sector.”
In Hanoi, office supply increased 1 per cent quarterly and 2 per cent annually, reaching 2.16 million sq m NLA, with the western area being the primary contributor, with a 41 per cent market share. In the third quarter of 2023, gross rental prices rose 2 per cent quarterly and annually to VND513,000 ($21.15) per sq m per month, driven by the Grade A office segment, where rents increased by 2 per cent quarterly to VND824,000 ($33.97) per sq m per month. Although capacity increased 1 percentage point quarterly, it experienced an annual decline of 2 points to 85 per cent.
The quarter recorded the highest total leasing area since 2020, reaching 44,500 sq m, with Grade A offices maintaining their appeal among new tenants, especially foreign companies seeking prime locations. Looking ahead to the end of 2026, more than 256,000 sq m of office space from 13 projects is anticipated, with 77 per cent constituting Grade A office supply. Notably, projects like 27-29 Ly Thai To, Grand Terra, and Tien Bo Plaza are expected to provide 68,400 sq m of green office space by the end of 2025, aligning with businesses’ significant commitment to ESG.
By 2026, Ho Chi Minh City and Hanoi anticipate substantial changes in their office markets. In Ho Chi Minh City, Savills’ 2023 Office Market Forecast predicts 20 per cent growth in Grade A and B office supply, adding 200,000 sq m by that time. Despite economic challenges, the market remains resilient, offering opportunities for investors targeting the growing middle class.
Savills foresees rental fluctuations of 1-2 per cent, a 6 per cent annual increase in rental area, and a shift in vacancy rates from 12 per cent in the short term to 8 per cent by 2025. Hanoi expects a 13 per cent increase in Grade A and B office space by 2026, with rental dynamics ranging from stability to a 1 per cent decrease. Major projects entering the market, particularly in the Grade A segment, are likely to influence rental prices and capacity, with a slight decrease anticipated.