HCMC office buildings see fewer tenants

The firms reported weaker renting demand in the 1, 3 and Tan Binh districts due to economic difficulties.

Nguyen Hong Hai, chairman of the office building and serviced apartment leasing company VNO Group, said the demand for low-end office spaces with a monthly rent of US$15-20 per square meter became weaker, while rents for mid- and high-end segments are expected to decrease in the next few months.

Affordable office buildings have low rents which have not increased for more than two years, so they cannot cut costs to lower rents further.

However, Hai said mid- and high-end office buildings with larger profit margins may have to reduce rents, otherwise their vacancy rates will increase rapidly in the next 12 months amid economic challenges.

The manager of an office building in HCMC’s commercial business district said the tenants who paid the rent late or owed back rent began to increase in late 2022, and that the number of tenants who are likely to leave the building this year is expected to climb in the next 3-6 months.

The general unfavorable business environment has affected the cash flow of companies located in the building, according to the manager.

CBRE Vietnam said after a positive recovery in the office building market in the first three quarters of 2022 signs of deceleration began to reappear in the last quarter, signaling many obstacles for the market in the coming 12 months.

Thanh Pham, head of research and consulting services at CBRE Vietnam, said that just 8,000 square meters of office buildings were rented in the fourth quarter of last year, down from 44,000 square meters in the third quarter.

A total of 75,000 square meters were rented in the whole year, or 69% of the pre-pandemic year of 2019.
Thanh predicted the office building market will be quiet in the first half of this year because business revenues are affected by difficulties in the macro economy.

Most companies will tend to postpone renting offices or expanding premises, and will sign or renew short-term rental contracts instead, she said.

With a potential bigger supply and the economy’s gloomy prospects, Grade A office rents are forecast to drop by some 4% this year, and the vacancy rate may reach 21.5%.

Meanwhile, Knight Frank Vietnam said rents of Grade A office buildings in HCMC are likely to decline by around $2 per square meter per month this year.

Currently, the average rent for high-end office space in the commercial business district is $57.73 per square meter per month, and the vacancy rate is 5%.

In late 2024, the rent will decrease to $55.5 per square meter per month, and the vacancy rate will surge to 20%, Knight Frank Vietnam predicted.

If operational office buildings want to retain tenants in 2023, they should allow them to renew contracts with the ceiling rent being lower than rents offered by new buildings, the commercial property adviser said.