Office market will record a decline in rental prices

According to a report by the Ministry of Construction , in the fourth quarter of 2023, office rental prices in major cities tended to decrease by 9-22% compared to the previous quarter. At the same time, the rate of office turnover and the trend of relocating offices from the city center to surrounding areas are also increasing.

In Ho Chi Minh City, the rate of office vacancies and relocation to areas surrounding the city center increased compared to the previous quarter. This led to a rise in occupancy rates of 15-25% in some central districts such as Tan Binh and Phu Nhuan. To cope with this situation, many buildings have had to increase incentives, reduce rent, or offer extended lease terms for specific contracts.

The surge in supply has led to many office spaces for rent in the city center being abandoned (Figure 1). — The number of vacant office spaces is increasing in central districts.

According to research by CBRE, 2023 was the year with the highest growth in office supply in Ho Chi Minh City since 2019, with nearly 170,000 square meters of new leasable space completed, mainly in well-located Grade A office projects. Throughout 2023, Ho Chi Minh City recorded nearly 80,000 square meters of office space absorbed, with over 90% of this coming from four newly completed Grade A buildings.

However, relocation transactions still accounted for a large proportion over the past year, at nearly 48%. The majority of these transactions were aimed at moving to newer, higher-quality offices with competitive rental rates. Accordingly, the vacancy rate for Grade A projects increased by 12.5 percentage points to 18.6%, and for Grade B projects increased by 1.4 percentage points compared to the previous year, reaching 10.1%.

Similarly, a recent report by the Vietnam Association of Real Estate Brokers (VARS) also noted that the occupancy rate of office buildings has decreased and faces the prospect of oversupply in the coming period. The reasons cited include the addition of new, high-quality supply to the market while older office buildings are not proactively renovating or upgrading; and a sharp increase in businesses returning leased premises, especially at the end of the year, due to financial difficulties.

Furthermore, the habit and trend of working remotely, as well as the phenomenon of small businesses giving up their office spaces and looking to rent lower-cost apartments or houses to save expenses, also significantly affect the occupancy rates of office buildings.

The surge in supply has led to many office spaces for rent in the city center being abandoned (Figure 2). — The shift from the city center to new office buildings has also led to a decrease in rental prices.

Regarding rental prices, VARS believes that prices will continue to remain stable, or even increase slightly in new, high-quality office buildings, or in the renewal of previous contracts.

In Hanoi , asking rents for Grade A office space range from US$25-50/m²/month, with service fees from US$4-8/m²/month. Asking rents for Grade B buildings range from US$12-28/m²/month depending on the area. Overall market rental prices increased slightly, by 4% year-on-year, due to a new supply primarily consisting of high-quality Grade A office space.

In Ho Chi Minh City, the rental price for Grade A office space ranges from 35 to 70 USD/m2/month. The rental price for Grade B office space ranges from 20 to 35 USD/m2/month. The majority of new supply comes from Grade A buildings with green office certifications, attracting high-quality tenants from the finance, banking, and technology sectors, especially foreign businesses.

However, if the rate of office space turnovers continues to rise, it will lead to a drop in rental prices, especially in older office buildings. This is almost certain to happen in 2024.

Therefore, businesses that lease office buildings should consider creating mechanisms to allow the conversion of office space into residential units, prioritizing affordable housing. This would both alleviate pressure from the supply-demand imbalance in the office market and create additional housing supply, which is becoming increasingly scarce.

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