Vietnam has been seeing a new wave of technology firms and co-working operators, creating new opportunities for the real estate industry.
There is no better place to witness the growing demand from technology firms and co-working operators than Vietnam, according to Stephen Wyatt, country head of JLL Vietnam.
“The country is catching up fast with its regional peers, due to a young, dynamic, tech-savvy, entrepreneurial population. We have seen a dramatic increase in demand from technology firms and co-working and flexible working operators over the past three years and anticipate this will be one of the key trends over the next five years,” said Wyatt.
Technology firms are driving office space demand in major cities
Hanoi and Ho Chi Minh City now have around two million square metres of office for lease each, and also limited co-working space. “It is high time for developers to focus on this investment field,” Wyatt told VIR.
Technology and e-commerce will dominate the market
As growth in Southeast Asia’s online economy gains pace, JLL projects that technology companies will drive office occupancy, potentially accounting for 15 to 25 per cent of annual gross office leasing volumes in the next decade, compared to about 5-10 per cent three years ago.
Technology companies have become a key office occupier group in the region, and they are frequently the earliest tenants to pre-commit to newly constructed buildings, according to JLL’s report “Technology firms transform Southeast Asia.”
“Given that technology firms will become a key source of office occupancy, this is an opportunity for real estate investors and developers to create space that will meet this need,” said Regina Lim, head of Capital Market Southeast Asia Research, JLL.
“Last year, the tech sector attracted over $6 billion in funding, and the industry’s growth will contribute significantly to the future office leasing volume, which we estimate will rise at 6 per cent annually amid a GDP growth rate of around 5 per cent,” said Lim.
Southeast Asian economies are forecast to expand at 5 per cent annually until 2020, exceeding the global rate of 3.5 per cent.
The region’s internet economy could be worth more than $200 billion by 2025, with e-commerce seeing the fastest growth. Along with an expanding middle class, this segment is predicted to rise at 30 per cent in the next five to 10 years to reach $88 billion by 2025, based on a Google-Temasek study.
As internet companies developed their presence rapidly in the region in the last decade, e-commerce firms have been flourishing in the past two years. The biggest global technology companies, including Alibaba, Facebook, Google, and Sea, currently each occupy a total of 20,000 to 50,000sq.m spread across three to five cities. Many of these companies have increased their headcount by 30 to 50 per cent annually over the last five to 10 years, says the JLL report.
Office demand accelerates in developing countries
Separately, co-working and flexible workspace operators have also contributed to the region’s office demand. Flexible workspaces have climbed by an estimated 40 per cent annually in the last three years and now take up 2 per cent of office stock in the region, compared with the 0.5-1 per cent in 2015.
“We think in the next decade, e-commerce companies will continue to grow, together with flexible workspace and co-working operators,” said Lim. “As e-commerce firms spread their footprint, we predict that gaming and e-sports platforms may become the next driver of office occupancy in Southeast Asia.”
According to JLL, the acceleration in office take-up by technology firms in the last three years has occurred mainly in Jakarta, Bangkok, Manila, and Ho Chi Minh City. Lim explains that the sustained growth of these companies has been driven by strong socioeconomic trends.