These are the new office projects to watch out for in Ho Chi Minh City

Projects due in Q4 are making good progress.

The office vacancy rate in Ho Chi Minh City CBD fell to 5.3% amid sustained demand and limited supply. However, JLL said in a report that the supply scene was revived with The Nexus, the first office building in Vietnam to hold LEED Gold and WELL Silver certifications. This CBD building meets international Grade A standards, and its completion is expected by November 2023.

The report added that upcoming Grade A buildings like The METT and The Hallmark in the Thu Thiem area and E.Town 6 in the Tan Binh District are nearing completion, putting competitive pressure on existing CBD establishments.

Here’s more from JLL:

Demand witnessed a significant upsurge in 2Q23, driven primarily by relocation and renewal transactions. This culminated in a net absorption of about 600 sqm of CBD’s Grade A office space. Tenants from the banking, finance, and FMCG sectors largely fuelled this demand, which showed a preference for sustainable Grade A offices that meet their high standards for quality, service and location.

New leasing demand was primarily from tenants seeking upgraded office spaces to meet their expansion needs. Concurrently, a trend of tenants downgrading from Grade A to Grade B spaces has emerged due to current economic adversities, pressuring long-standing Grade A buildings and affecting their tenant retention and acquisition capabilities.

Landlords sustain leasing prices amid escalating competition

Facing anticipated upcoming new supply, the Grade A office market contends with escalating competition, especially among longstanding properties. To cope, landlords are expected to maintain rents, thus balancing attracting new tenants and retaining existing ones. Consequently, CBD Grade A office net effective rent held steady at USD 48.6 per sqm, per month in 2Q23.

In contrast, CBD Grade A+ buildings adhering to international green standards outperformed the market due to record-low vacancies and rising interest. Tenants favour these green spaces for their sustainability commitments. Consequently, the net effective rent for these offices reached USD 60.7 per sqm, per month in 2Q23, a 3.1% y-o-y increase.

Outlook: Sustainable offices in demand; older buildings challenged

In the near future, office buildings with globally recognised green and wellness certifications are expected to excel in tenant attraction, particularly within the new Grade A office segment. Current developments like The Nexus and E.Town 6 are pursuing LEED certifications, while the upcoming Thu Thiem projects, The Hallmark and The METT, have already secured BCA Green Mark certifications.

Transitioning into 2024, we foresee heightened competition due to numerous emerging projects. The landlords of longstanding buildings will likely maintain steady pricing policies to ensure tenant retention. However, demand for Grade A+ space is expected to grow, particularly for high-end green projects, as international tenants look to expand and upgrade their office spaces.

Note: Ho Chi Minh City Office refers to Ho Chi Minh City's Grade A office market.