Overview HCMC and Hanoi Office 3Q 2018


October 16, 2018

Supply rose: In 3Q18, the market welcomed a new Grade B building in District 2 called Thaco Complex. As a result, the total stock of Grade A and Grade B increased 1.3% q-o-q to 1,149,767sqm.

Positive demand: Grade B recorded high net absorption, driven by the recent completions in the last few quarters. In 3Q18, Grade B net absorption was approximately 14,500sqm, of that 9,500sqm was occupied by the owner of the new completion in the quarter.

As of end-3Q18, overall occupancy rate continued to improve and stood at over 95%. On the back of positive demand in the market, the occupancy rate of Grade A and Grade B keep its upward trend. Leasing demand during the quarter was driven by relocation and expansion.

Rents slightly increased: Grade A average rent continued the upward trend. The current high level of market rent has left less room for further growth in this sub-segment. Similar to Grade A sub-segment, Grade B average rent slightly rose on the back of positive demand in the market.  Moreover, several up-coming projects of 2019 started pre-launch strategies with higher-than-average rent, thanks to the better building quality and favourable market conditions.


Supply limited by end-2018: Grade A and Grade B supply are expected to remain scarce to end-2018. By the end of 2020, high-quality Grade B supply will be expectedly completed and likely put pressure on Grade A sub-market. The scarce in office supply will facilitate for development of alternative solutions, such as "flexspace" [3].

Rents keep trending up: Limited supply, high demand and better quality future supply will support the upward trend in rents in the future. Technology companies are steadily growing and playing an important role in office demand.

[1]: Gross rent includes service charges/management fees but exclusive of VAT.

[2]: Average gross rent, q-o-q and y-o-y changes are adjusted to remove the effects of supply additions / removals (i.e. changes are on a like-for-like basis).

[3]: Flexible space represents a variety of work spaces used by occupiers to increase their portfolio flexibility through short to medium-term leases.


Grade b supply increases significantly: In 3Q18, there was no new Grade A supply while Grade B segment welcomed a wave of new supply, bringing the total Hanoi office stock to more than 1,916,000 sqm. All new completions located in Thanh Xuan and Cau Giay districts, the emerging area for office development.

Demand is positive: Given large available spaces in recently complated Grade B buildings, the net absorption of the Grade B office market recorded the highest across all segments, at more than 45,000 sqm in 3Q18. Relocation and expansion office space continued to be the main drivers of office demand.

Average rent remains stable: The average gross rent of the Grade A market increased slightly 1.2% thanks to strong demand and limited supply. The Grade B office market witnessed a decline in rent during the reviewed quarter, a slight decrease of 0.2% q-o-q, a result of lower-than-average rent in new supply. Landlords in several Grade A properties with high occupancy rate increased the asking rents to select strong brand name tenants for the buildings.


Supply to increase further: By the end of 2018, more than 36,000 sqm office space is expected to come into operation. Almost new supply will be in the CBD-fringe sub-market. In the 2019-20 period, the Hanoi office market will welcome a large number of new Grade A and Grade B supply, with more than 50% from Grade B segment.

Demand for office space will continue to increase: Grade A office performance will remain positive with no new supply to be completed until 1Q19. New Grade B office buildings with reasonable rents are likely to push the demand for office space up over the next quarters.

[1]: Gross rent includes service charges/management fees but exclusive of VAT.

[2]: Average gross rent, q-o-q and y-o-y changes are adjusted to remove the effects of supply additions / removals (i.e. changes are on a like-for-like basis).

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