Top-tier office, retail space remains scarce

With available office space running low, quality office and retail space as well as serviced apartments are hot properties, according to CB Richard Ellis Viet Nam Co. Ltd.

In a report delivered at a press meeting on Thursday, CBRE managing director Marc Townsend said the supply of office space is both limited and changing.

Rents are climbing while land prices are softening, he said.

The going rate for premium space increased as much as 100 per cent in the past year, from US$35 per sq. m. in the first quarter of 2007 to $70 per sq.m now.

Comparing the same period last year, rentals of prime real estate increased by 103 per cent in HCM City and 58 per cent in Ha Noi, Townsend said.

According to CBRE’s report, the average rent of the choicest offices in Ha Noi stands at $50 per sq. m., behind HCM City at $70, Hong Kong at $127, Singapore at $129 and Tokyo at $180. It still comes in ahead of Beijing at $30, Bangkok at $24, Seoul at $22 and Jakarta at $9.

Ha Noi market

Ha Noi’s first and second tier buildings are headed west, Townsend said. The city’s select office buildings in the west now include the 62,000 sq.m Landmark on Lieu Giai Street in Ba Dinh District, the 54,000 sq.m Ha Noi Plaza Hotel on Tran Duy Hung Street in Cau Giay District, and the 209,746 sq.m Keangnam Ha Noi Landmark on Pham Hung Road in Tu Liem District.

HCM City situation

In HCM City nearly 781 multi-national companies and 466 Vietnamese companies are putting the pressure on the office space scene. These include 225 companies in the shipping, forwarding and logistics sectors, 206 in banking, 179 in trading and commerce, 170 in oil and gas, 160 in finance and funds, and 142 in securities.

CBRE says this year’s first and second tier office stock is scarce. In May 2008, HCM City’s office space scene was comprised of 99,618sq.m of top tier floor space, 297,146sq.m of the second tier and 355,654sq.m of the third tier.

No new Grade A buildings have been completed in HCM City since 1999. The next Grade A buildings to come on market will be in 2009 when the 27,000sq.m Centec Tower and the 31,000sq.m. Asiana Plaza open their doors. Vietnamese developers account for 29 per cent of the space, while joint ventures with foreign developers account for 71 per cent.

HCM City’s central business districts continue to be the preferred office locations, accounting for over 70 to 80 per cent of the total ground floor area. However, decentralised locations are emerging in Tan Binh, Binh Thanh and Phu Nhuan Districts as well as Sai Gon South, Townsend said.

Thu Thiem will also be an ideal, decentralised location close to the central business areas for financial services, telecommunications, consumer goods and IT sectors, he added.

"Thu Thiem is attracting strong interest from developers," said Townsend.

VIJA PowerSource, a joint venture of Kyokuto Construction Co and Kobekara VIJA Brain Park, will build a 440,000sq.m. IT Office Building there. Also in Thu Thiem, TECO Group, a joint venture with Saigontel, will build the 700,000sq.m Teco-Saigontel Software Park for the hi-tech, software, banking and insurance sectors.

Tenants pay as much as 30 to 40 per cent less in rent for prime real estate at decentralised locations than in areas close to HCM City’s District 1. Moreover, the buildings are newer, designed better, and often more professionally managed. Flexible lease terms, better parking ratios and higher quality flooring are other benefits to working farther from downtown.

Results from CBRE’s survey with 66 tenants in some of HCM City’s first and second tier buildings show that their chief concerns are rentals, location and security.

Tenant response

While the top quality buildings continue to have their leases renewed or get new tenants, the second tier buildings are showing early signs of softening, according to Townsend.

"Unlike 2007, tenants now have time for non-grade A space. Tenants feel their position strengthening when they return to the building and it has not been leased," he said.

"As space requirements increase, rental budgets per sq.m tend to decrease".

Tenants are rationalising their priorities to ensure that they can achieve a satisfactory return on their investment, Townsend reported.

Local companies are not willing to push up the rates at the upper end, he added. (VNS)