The office rental market is booming, and here are the expert predictions.

Create a competitive environment.

The office leasing market has recently seen a resurgence with transactions involving office expansions or relocations. Simultaneously, the market has observed a shift in tenant demand, forcing office owners to adapt in order to retain tenants, especially large companies and multinational corporations.

To better understand the shifting needs of tenants and identify factors that effectively retain office tenants, Mr. Matthew Powell, head of Savills Vietnam, stated that the office market is benefiting from the increased FDI inflow into Vietnam in recent times.

According to data from the Ministry of Planning and Investment , as of April 20, 2024, the total FDI into Vietnam reached over US$9.27 billion, an increase of 4.5% compared to the same period in 2023. To date, the country has 40,049 active projects with a total registered capital of nearly US$478.58 billion.

Many Grade A office spaces are available for rent in Ho Chi Minh City.

Foreign investors have invested in 17 out of the 21 national economic sectors. Of these, the manufacturing industry leads with a total investment of over US$6.15 billion, accounting for nearly 66.4% of the total registered investment capital, an increase of 19.8% compared to the same period last year.

The real estate business sector ranked second with a total investment of over US$1.73 billion, accounting for nearly 18.7% of the total registered investment capital, an increase of 78.2% compared to the same period. This was followed by the wholesale and retail trade sector and the transportation and warehousing sector, with total registered capital reaching over US$451.4 million and nearly US$383.2 million respectively.

The growth and diversification of FDI flows, coupled with a continued positive business confidence index, have shown Vietnam to be a potential market for many types of businesses, thereby driving up demand for office space.

Office leasing activity was vibrant in the first quarter of 2024. Tenants in the information technology, manufacturing, and legal sectors held a high proportion of the market.

However, high demand is not present across all office categories. Current demand is concentrated in the high-quality office segment, as tenants have more stringent requirements for office space. They need offices that guarantee good quality and a positive work environment to attract and retain talent.

The working environment is always one of the factors that both office space investors and tenants look for.

Therefore, the trend is gradually shifting towards green-certified buildings with quality spaces and full amenities. Consequently, office developers must keep up and ensure they provide high-quality standard spaces to meet general demand.

The current trend is that most tenants prefer central areas of major cities, where there are high-quality new projects, reasonable rental prices, and proximity to the city center.

As can be seen, tenants' office selection trends depend on many factors, and price is not the only factor that businesses consider, especially for tenants who tend to upgrade their offices to Grade A buildings.

For many companies, moving to green-certified office buildings is a top priority or even a mandatory requirement, as it is part of their global ESG commitment to their shareholders and relevant legal regulations.

Sometimes companies are willing to pay extra for a higher-quality building with green certification, providing a more efficient work environment for employees and building a positive brand image with customers. So, while price is clearly a very important factor, it's not the deciding factor.

Savills experts have noted the differences between green-certified buildings and uncertified buildings.

Older buildings that don't meet green building standards will now face greater pressure to lower rents as they struggle to compete with green-certified buildings. Evidence of this is that some landlords, particularly for Class B office buildings, have had to reduce rents to retain tenants, while luxury buildings have maintained stable rental rates.

“Price is obviously an important factor. But like anything else, many people are willing to pay for quality experiences. Similar to buying a car, clothes, or a handbag, sometimes a price difference is acceptable for higher-quality products and services,” said Matthew Powell.

Office rental prices in Ho Chi Minh City are rising.

According to Savills experts, the office market in Ho Chi Minh City has many strengths, with large office spaces accompanied by a larger commercial market. Office rental prices in Ho Chi Minh City remain higher than in Hanoi, especially in projects in District 1.

However, the Ho Chi Minh City market was previously mostly concentrated in District 1, which provided the main supply of office space. Currently, however, there has been a shift towards the Thu Thiem area, with new office supply, larger floor areas, and many green-certified projects.

Meanwhile, the situation in Hanoi is different. Hanoi has a more widespread development of the office market, with various locations concentrating commercial projects such as Hoan Kiem, Ba Dinh, West Hanoi, and soon the West Lake area.

However, the current occupancy rate in projects located in Hoan Kiem and Ba Dinh districts is quite high. Therefore, new buildings expected to launch in the near future, such as Grand Terra, Taisei Square Hanoi, Tien Bo Plaza, and BRG Diamond Park Plaza, will be a new source of supply, adding vibrancy to commercial activities.

Ho Chi Minh City is considered to have a large and attractive number of office spaces for rent at better prices.

Experts also believe that office rental prices in Hanoi are unlikely to surpass those in Ho Chi Minh City in the future.

According to Savills Asia Pacific's data for the second half of 2023, the average rental price for Grade A office space in Hanoi remained at US$41.7/m2/month (including taxes and service fees) compared to the region. Meanwhile, the figure for Ho Chi Minh City was US$63.2/m2/month.

In particular, with the supply of new Grade A properties in Hanoi expected to increase in the near future, rental prices will continue to remain competitive.

For individual buildings that are highly sought after or of good quality, higher prices may be required, but not significantly higher than alternatives. Therefore, in the near future, Hanoi will maintain reasonable rental prices for high-quality properties.

At the same time, experts also argue that the investment cost for green buildings is a long-term investment. Meanwhile, the story about price reductions is a short-term one, because office tenants typically use the space for a long time, at least 5-10 years, or even longer.

Therefore, sustainably developed green office buildings are crucial for developers to retain tenants long-term. Thus, the current challenge for developers of green projects is long-term investment.

Source: https://www.nguoiduatin.vn/thi-truong-cho-thue-van-phong-soi-dong-va-nhung-du-bao-cua-chuyen-gia-a663028.html