Vietnam office capital values up 12.6% in Q4 2020

Capital values in Ho Chi Minh City hit USD 7,621 per sqm, reflecting investors’ optimism.

According to JLL, Grade A office leasing, albeit backed up by deep-pocketed companies, was under pressure recording negative net absorption for the first time since 2013. Some Grade A buildings found it challenging to fill up space given the muted new set up enquiries and tightening budget for expansion and relocation.

The vacancy rate in M Plaza Saigon increased the most with more than 1,800 sqm vacant space in 4Q20 as tenants relocated and downgraded to other buildings. The one-year old Lim 3 recorded no new net absorption in 4Q20, although the landlord decreased the rental level down by 20% from 3Q20.

Market remains tight with no new supply added

The total Grade A office stock in Ho Chi Minh City remained at 229,100 sqm with no new supply added to the market in the quarter.

Softening demand under the outbreak and new completions over the past 12 months have resulted in a slide in Grade A occupancy by 149 bps y-o-y to 90.5% in 4Q20.

Rents remain stable

Most landlords kept rents stable q-o-q, at USD 47.6 per sqm per month in 4Q20, as they seemed to remain optimistic with the current tight vacancy environment and limited future supply. However, it should be highlighted that some newly completed buildings came under pressure to fill up space and thus tended to support tenants as much as possible.

Capital values increased to USD 7,621 per sqm, up by 12.6% y-o-y in 4Q20, reflecting investors’ optimism in the mid-to-long term prospects of the market.

Outlook: Buildings with large vacancy to face greater pressure on rents

The market will remain tight with no new supply expected in the next 12 months. However, demand is expected to continue to soften until the virus is globally contained. Therefore, those buildings with large vacancy will likely reconsider their asking rents and leasing strategies to quickly fill up space.

As the slowdown in rental growth is expected to be temporary, capital values are projected to stay on a mild growth trajectory amid the falling interest rates and continued competition for the limited Grade A offices available for sales.

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