Vietnam's Grade A office rents grew for 13 straight quarters

Monthly rents inched up 0.6% to USD 47.4 per sqm in Q2.

Regardless of the lingering economic uncertainty, JLL notes Grade A rents arguably continued to grow for 13 straight quarters, reaching USD 47.4 per sqm per month in 2Q20. On average, this was a slight increase of 0.6% q-o-q and 7.0% y-o-y as landlords seemed to stay confident with the current tight vacancy environment in the market and limited future supply.

In line with the upward trend in rents, capital values increased to USD 7,253 per sqm, up by 0.6% q-o-q and 13.1% y-o-y in 2Q20.

Here’s more from JLL:

New absorption in 2Q20 mainly driven by new completions

Friendship Tower – the newest completion in 2Q20 – contributed most of the take-up in the quarter. Key tenants to take up space in this building included tech firms, manufacturers and co-working offices. Meanwhile, other Grade A buildings did not see any notable new leasing transactions. Some even recorded negative net absorption as tenants returned spaces.

The Grade A market, albeit more resilient compared to lower segments and backed by deep-pocketed companies, faced pressure due to the impacts of the COVID-19 pandemic. Specifically, occupier demand from expansions and new setups appeared to come to a halt during the outbreak.

New supply and negative net absorption in buildings drive vacancy

Friendship Tower was the only new building that entered the market in 2Q20, providing 11,900 sqm of leasable space, and pushing the total Grade A stock to 229,100 sqm.

In addition, a number of buildings recorded negative net absorption in the quarter as tenants under financial difficulty returned spaces. The combination resulted in an increase in overall vacancy rate in the Grade A market by 276 bps q-o-q to 9.2% in 2Q20.

Outlook: Market outlook subject to global pandemic situation

Total Grade A stock in the HCMC office market is forecast to remain at 292,100 sqm by end-2020. Given the current tight market with occupancy rate staying high across the board, landlords are unlikely to adjust their rents in the short term. Thus, 2Q20’s rent forecast remains unchanged compared to that in 1Q20. However, the projection is greatly subject to when the pandemic is contained globally.

As the global economy remains uncertain, Grade A office tenants will take a hard hit, with probably those in new setups and expansion demand coming first. Moreover, a trend of tenant’s relocating from Grade A to Grade B in future is also expected, mainly to save costs amid the lingering economic uncertainty. Hence, vacancy rate projection is adjusted less favourably compared to 1Q20’s forecast.

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