High Office Rents

High Office Rents

Recently, the Hanoi-based office of the Japan External Trade Organisation (JETRO) has announced that office rents in Vietnam had increased sharply in comparison with other countries in the region. A survey conducted by JETRO shows that office rental in Vietnam is between three and four times higher than the same kind in Myanmar, China, Hong Kong and Thailand. This has resulted in a paradox forcing domestic enterprises to concede their playground to foreign ones. How can domestic enterprises rent offices at such high costs?

90 per cent of foreign enterprises rent offices

Nguyen Hoa Binh, in charge of a real estate leasing office of the Asian Commercial Joint stock Bank, said that most leased offices in Hanoi had been filled. Binh added that offices at major buildings in Hanoi, such as Central Building at 63 Ly Thai To, Hanoi Towers at 43 Hai Ba Trung have all been hired. Accordingly, rents of offices in these buildings have seen a year-on-year increase as more and more foreign enterprises seek opportunities in Vietnam. Rents of offices at major buildings, rated as class A, in Hanoi fluctuate from US$23 to 25 per square metre per month. Rents of offices of smaller buildings, such as Thang Long Ford at 14 Lang Ha and Vinaconex Building at 2 Lang Ha are between US$10 and US$19 per square metre per month. Many large luxurious hotels, including Daewoo, Horizon and Melia, which have been involved in the office leasing business, have forced the office leasing market in Hanoi to heat up. Tony Hien, in charge of the office leasing office of the Daewoo Hotel, said that the hotel's offices for lease have been filled and there were now only apartments for lease. The hotel's customers include foreign companies and organisations, including Korea Trade - Investment Promotion Agency (Kotra), the Japan International Cooperation Agency (JICA), the Ericsson Company of Sweden. Rents of offices at the Daewoo Hotel are highest due to its location near the city centre and its modern equipment and facilities. The starting level of office rent at the hotel is US$48 per square metre per year. Rents of the offices vary depending on the floor. For example, rents for offices on the first and second floors are put at between US$48 and US$50 per square metre, respectively.

Despite such high rents, offices for lease have been filled. The Melia Hotel, for example, has seen most of its offices rented by electronic companies from the Republic of Korea, which have occupied up to 50 per cent of the total offices. The remaining offices have been rented by a pharmaceutical company and representative offices of foreign enterprises.

Where do local enterprises rent offices?

The number of local enterprises renting offices accounts for just a small proportion.

The market for office leasing in Hanoi is predicted to witness a great change once many new office buildings become operational. For example, the Artexport Building with an area of 6,000 square metres at 31 and 33 Ngo Quyen will start operation soon, while the Ocean Park of the Vietnam Shipping Lines Corporation with a total area of 60,000 square metres, which is expected to become operational this July. The Vincom City Towers at 191 Ba Trieu with a total area of 50,000 square metres will also open this November. The three buildings alone can offer a total area of offices for lease larger than the present demand, according to real estate traders. Other office buildings for lease on Ho Xuan Huong, Hoang Quoc Viet and Tran Hung Dao will also be completed this year. For example, the Hacinco building with an area of 17,000 square metres in Tu So crossroad and the Hoa Binh building on Hoang Quoc Viet Street will open soon.

Nevertheless, office rental is still a luxury for local enterprises. Many of them have made contact with developers of these buildings but office rents are still too high in relation to their budget. Mark Richard, manager of the Ocean Park building said that office rents of the building were expected to be put at between US$18 and 20 per square metre per month. Mr. Richard said that the rents seemed high for Vietnamese enterprises. However, he said that most of the area of the building had been rented by the Siemens Company.

Due to an increased number of enterprises set up under the Enterprise Law, the demand of office rental by local enterprises is quite large. However, due to high rents they have to concede offices of more convenient locations to foreign companies.

• Phuong Ha