Difficulties in Renting Offices

Difficulties in Renting Offices

If State-owned enterprises have great advantage with offices and land for production, it is very difficult for private enterprises to rent offices. Without offices in convenient locations, many private enterprises have lost their business opportunities.

Offices in high building - impossible

It is very expensive for a private enterprise to rent an office in high and modern buildings in such major economic centres as Hanoi and Ho Chi Minh City. According to statistical figures, in Hanoi only 1,400 out of 185,000 square metres of offices for rent remains available. This means that 99.2 per cent of office space has been rented.

According to the latest research by CBRE VN, average office rent, including service charges, is put at US$28.05 per square metre per month, increasing between five and ten per cent against that of 2003. Ho Chi Minh City is now in the top five cities with the highest office rent in Asia, Tokyo with US$102.38 per square metre per month, Hong Kong with US$32.19, Mumbai with US$34.77, Seoul with US$29.28. The rent of C-class office, at US$10 or US$15 per square metre per month, accounts for 95 per cent. With such a high office rent, private sectors, with small budget, can find the cost impossible to meet.

Other troubles

The only option for private enterprises is to rent houses from people or re-rent land from State-owned enterprises with rent of between US$2 and US$10 per square metre per month. However, they face many troubles.

The Bac Thang Long Trade and Tourism Joint stock Company rents an office on Ho Dac Di street. As the company rents the first floor with an area of 40 square metres of a three-storey building, the company has to share the door with their landlord. This has caused many troubles for the company. For example, when the company’s officials were welcoming their guests for the opening ceremony, the landlord’s wife and children returned home in their pyjamas after their breakfast. In such a context, the company’s officials were extremely embarrased. Furthermore, after several months, the landlord asked for an increase in land rent from VND 3 million to VND 3.5 million due to an increase in prices of necessary goods. If the company did not agree, they would lease their house to other enterprises. Unpleasant as it was, the company had to accept the request because they did not want to relocate their office with new investments in furniture and office repairs. This story is familiar for many enterprises which rent houses from people for their offices.

According to experts, regardless of whoever landlords are, State-owned enterprises or households, such an office rent is temporary. Rent duration is often one year without guarantee that private enterprises will be able to rent for another year or not. Landlords understand the difficulties private enterprises have to overcome when they relocate their offices. These include the possibility of losing business opportunities and new investment in buying furniture. As a result, many landlords take the opportunity to ask for higher rent.

Also, enterprises which rent houses as their offices cannot declare office rent as business costs for tax reduction as landlords do not want to declare incomes from leasing their houses because they will have to complete complicated procedures with taxation agencies. This is the same for enterprises which rent offices from State-owned enterprises as State-owned enterprises are not permitted to re-lease their properties.

Solutions

It is reported that in the coming time, total area of offices for rent in Hanoi will increase to 250,000 square metres with the two new buildings, Ocean Park and Even Fortune Plaza, being put into operation with total are of 56,000 square metres. However, rent of offices in these buildings is very high. Therefore, it still remains difficult for private enterprises, with tiny budgets, to find suitable places for their offices.

According to experts, what the Government can do to help private enterprises overcome difficulties in finding offices is to create favourable conditions or to encourage private enterprises to invest in building office buildings for lease. However, this should be considered with master plans in each locality. Private enterprises can develop only when they have offices for transactions.

• Quynh Chi