Hanoi Office Market Keeps Flourishing

4:15:04 PM | 10/11/2017

The office market is often directly affected by macroeconomic performance. A better macroeconomic performance will be the basis for a more active office leasing market. The third quarter of 2017 continued to witness positive developments on the Hanoi office market.

The economy performed well in the third quarter of 2017 after the gross domestic product (GDP) climbed 5.7 per cent in the first half and inflation was capped at lower 5 per cent. Registered foreign direct investment (FDI) rose 45.1 per cent year on year to US$23.4 billion in the first eight months of 2017. Vietnam also expected to achieve high growth rates in the second half of the year thanks to the positive outlook of global economies as well as trade growth, FDI, business environment, macroeconomic policy and economic integration.

Remarking on office leasing segments in Hanoi City in the third quarter of 2017, Ms Do Thu Hang, Research Director at Savills Vietnam, said that no Grade A buildings in downtown districts like Hoan Kiem have full floor spaces for leasing. This high occupancy is resulted from good economic performance.

According to a Savills report, in the third quarter, total office stock was approximately 1.59 million square meters, down 1.7 per cent quarter on quarter and down 2.8 per cent year on year after three projects withdrew and one closed for renovation. Average rents fell 0.1 per cent quarter on quarter but rose 1.3 per cent year on year while occupancy increased by 0.7 percentage points quarter on quarter and 6.5 percentage points year on year. Rents went up because of rising occupancy rates. Some buildings were even almost full. Nevertheless, tenants still hold market advantages due to abundant supplies and competitive rents.

The third quarter did not see any Grade B office buildings completed, resulting to a quarter on quarter drop of 0.8 per cent despite a year on year growth of 7.4 per cent. Both Grade A and Grade B offices had higher occupancy rates in the quarter. Total leasable area was 37,650 square metres, two-thirds of which came from new buildings.

Over 27,000 square metres of Grade A and Grade B office spaces were rented in the third quarter, with some deals leasing over 1,000 square metres of floor. As in Ho Chi Minh City, tenants tended to relocate and expand offices in the quarter. Rents of Grade A and B offices looked up in the third quarter, locking a quarter on quarter growth of 0.9 per cent.

“Savills sees that only a few buildings will be put into operation in the next couple of years. With such a limited supply, office rents in Hanoi may rise 5 - 7 per cent in 2017, especially Grade A segment. The market is expected to undergo a correction in 2019,” she said.

Speaking of this segment prospect, Hang said, “Many investors are hesitant to develop the office market because rents do not come up with their expectations. But, tenants have many reasonable rent rates for the time being. A total of 228,000 square metres of office space will be supplied to the market by two projects in the fourth quarter of 2017 and 10 projects in 2018.

Given the Grade C office occupancy rate of 97 per cent in western Hanoi, supply pressures are expected to balloon in this area and in the downtown. The relocation of eight branches to outer areas is expected to generate new supplies and facilitate the development of other product lines for the market.

Luong Tuan