JLL: Market continues to favour landlords
Overall net absorption recorded more than 50,000 sqm, mainly contributed by newly completed buildings, namely Lim Tower 3 and Phu My Hung Tower.
Vietnam, 14 Jan 2020 – Amid strong demand and limited upcoming supply, landlords became more aggressive in asking rents and leasing strategy, focusing on selecting high-profile and sustainable tenants.Co-working operators kept expanding quickly, contributing largely to the net absorption during the quarter.
Vacancy rate remains tight despite new buildings added that Lim Tower 3, Phu My Hung Tower and Viettel B building entered the market in 4Q19, bringing up HCMC Grade A&B office stock to 1.306 million sqm, up 7.3% q-o-q and 11.3% y-o-y.
Despite the new supply, Grade A&B market continued to tighten with vacancy rate recorded at 6.5% at end-2019. In the current market, only one Grade A building (Lim Tower 3) and ten Grade B buildings that can provide a contiguous space larger than 1,000 sqm.
Moreover, rents soar past the recent peak to reach a decade high. Rental rates in Grade A&B increased by an average of 1.1% q-o-q and 7.4% y-o-y to reach a decade high of USD 29.1 per sqm per month in 4Q19. This was supported by strong demand and higher rental rates in newer office developments. Also, landlords continued to have strong bargaining power this quarter given the restless rental growth amid limited stock.
Let’s take an outlook in 2020, total stock in HCMC Grade A&B office market is forecasted to rise to 1.5 million sqm with the completion of nine buildings, mainly from the Grade B segment. Meanwhile, majority of the Grade A offices in prime location deferred their completion date to beyond 2021 owing to prolonged approval process.
Demand is likely to slow down in 2020-2022 compared to 2017-2019 period, as global economic uncertainty may affect tenants’ rental budget while the rental of Grade A buildings are currently at high level.
Co-working is gaining popularity, not only for start-ups and SMEs. This trend is expected to continue in the future.
Figure 7: Office Total Stock
“000 sqm NLA
Figure 8: Office Average Rents
USD/ sqm/ month
The demand stabilises in 4Q19, both Grade A&B submarkets recorded a higher net absorption in comparison to 3Q19, indicating a stable demand. The occupancy rate of the market continued to increase and reached 93.0%, in which Grade A submarket achieved the rate of 94.0%. The positive net absorption of Grade A offices was mainly attributed to TNR Tower and ThaiHoldings Tower, the two latest additions to the market. In addition, Grade B buildings recorded higher net absorption than Grade A due to its abundant supply.
While there was no new supply in Grade A submarket, Grade B continued to welcome two new buildings, Coninco Tower and Peakview Tower, which helped to raise the total supply of Hanoi office market to reach almost 1.8 million sqm. Both new buildings were located in Dong Da District, one of the main office clusters of Hanoi. In 2019, this district has also welcomed the largest amount of new supply. With high construction quality and reasonable price, the two buildings achieved impressive occupancy rate in the first quarter of opening.
In 4Q19, the average rental rate of Hanoi Grade A&B office increased moderately by 0.3% q-o-q, resulting in a considerable growth of 6% y-o-y. Positive demand helped sustain the growth throughout 2019, however, the pace started to show signs of weakening toward the year-end period. By location, during 2019, CBD area, in which Dong Da district took the lead, rose faster than the new office clusters including Cau Giay and Nam Tu Liem districts, since the majority of supply were located in central areas. In addition, the new additions in the CBD area with high quality also benefited the trend.
The market is expected to welcome a large amount of new supply in both Grade A&B in 2020, of which Capital Place is the most notable one. Capital Place should set new standard for the office market, based on its first-class quality.
Demand is forecasted to stay steady, with relocation and expansion being the main drivers. However, with a large supply pipeline, landlords should employ flexible strategy to quickly react to the changes in the market and tenants’ needs.
Figure 17: Office Total Stock
“000 sqm NLA
Figure 18: Office Average Rents
USD/ sqm/ month
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of nearly 92,000 as of June 30, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.