Like what is happening on the real estate market, the office segment in Hanoi is quite slow. Grade A office vacancy increased from 5 percent to 24 percent and the Grade B segment was 19 percent. This has placed a huge pressure on investors. To learn more about this issue, Vietnam Business Forum has an interview with Mr Greg Ohan, Director of Office Services at CBRE Vietnam Company. Luong Tuan reports.
The office segment is currently facing many difficulties, especially in two major cities, Hanoi and Ho Chi Minh City, where many office projects are located. What are major differences between these two cities? Is there any possibility for recovery for this segment in this year?
The real estate market in general and the office segment in particular are quite different between Hanoi and Ho Chi Minh City. The supply of offices for lease in Ho Chi Minh City is still less than in Hanoi. In Ho Chi Minh City, the supply mainly concentrates in the downtown while it covers in a wider area, both in business district and non-business districts. In addition to the downtown, the western part also has many office blocks for lease. The huge supply amidst economic slowdown will cause prices to fall further in 2013, with most drops expected in both Grade A and Grade B offices, I think.
In the first quarter of 2013, the Grade A and Grade B office segments were opposite in Hanoi. The vacancy of Grade A offices surges while it reduces in Grade B office segment. Could you tell us the reasons for this phenomenon?
Currently, Grade B office buildings are more attractive to customers than Grade A offices because of many factors like more choices, good service quality, good construction quality, and incentives from the hosts. Importantly, economic downturn has caused considerable impact on enterprises, forcing them to reduce expenses. As a result, many companies change their business locations from Grade A office buildings to Grade B ones with lower prices.
Rent rate decrease remains a major trend in the coming time. So, do you think the price cut is the best option for investors to fill up their vacant spaces in the coming time?
Investors themselves are fully aware of current property market difficulties in particular and the economy as a whole. So, I think to fill the vacancy, investors must reduce prices plus offering other incentives to entice tenants. For example, they can apply progressive rent rates or free rents when interiors are set up.
Merger and acquisition (M&A) is quite popular in the real estate industry. Do you think this trend will continue in the coming time?
For the time being, we have no notice of new M&A cases in the real estate sector. Instead, investors restructure their businesses like changing their office locations and divide their rentable spaces to smaller pieces to find customers more easily.
The market is oversupplied. Which projects are attractive to customers and more likely filled up?
Currently, investors are offering a variety of preferential programmes to allure tenants. These activities are mainly launched in newly completed projects. Investors introduce suitable incentive programmes, especially rent cut, to lease out their office space as soon as possible. The prices are revised in one or two years. Normally, tenants do not want to change their locations because they usually invest a lot for their business locations.
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