With robust leasing transactions recorded across all sub-markets, Ho Chi Minh City’s office market keeps healthy performance and brings fresh Grade B supply joining the Saigon South submarket.

With no new office space coming online this quarter, Grade A recorded a vacancy rate of just 5.9% – a decrease of 0.7 percentage points q-o-q and a sharp drop of 7.8 percentage points y-o-y. With supply restricted, asking rents for this quarter maintained an upward momentum growing 5.2% y-o-y to reach US$57.68 psm per month including service charge.

Grade A office space in CBD saw asking rents jump to US$62.59 psm per month with 4.3% y-o-y as well as showing positive net absorption of 1,548 sm as tenants seek high quality downtown space in a limited market. In comparison, Grade A Saigon South reported asking rents of US$34.30, increasing 0.6% compared to last quarter, with a smaller net absorption of only 697 sm resulting in Saigon South vacancy hovering at a more tenant-favourable 14.6%.

“The main dynamic we observed in Q3 was Grade A tenants relocating and/or expanding within the existing Grade A supply, rather than Grade B tenants upgrading which has resulted in Grade A rents remaining flat quarter on quarter,” said Mr. Leo Nguyen, Director of Occupier Strategy and Solutions with Knight Frank Vietnam. “Rent-sensitive Grade B tenants, meanwhile, showed a preference for older Grade B stock (five years and older), with leasing size of 500 – 700 sm being most active and at below US$30 psm per month.”

Grade B’s performance in Q3 was little affected by the addition of 19,965 sm to the market when Cobi Tower 1 & 2 in Saigon South came online. Grade B asking rents stabilised at US$33.78, a drop of only 0.1% compared to Q2, and a vacancy rate of 8.4%.

Data shows Grade B landlords are looking to keep rents flat to attract tenants with relocation and renewal needs, as majority of sub-markets have kept their rents flat, except for CBD and Saigon South where asking rents went up by 0.6% and 1.9% q-o-q, respectively, owing to CBD’s prime location and low vacancy and new supply in Saigon South typically asking for higher rents at the point they start operating.

The bulk of transactions this quarter came from relocations (48%), new acquisitions (32%) and renewals (20%), with 70% of major transactions being for leasing spaces between 1,000 and 2,000 sm. Notable tenants came from F&B (17%), IT (16%), Logistics (12%), Electronics (12%), and Coworking Space (9%).

Considerable new supply for both grades is expected to come online in Thu Duc City and CBD, with a total of 176,931 sm and 127,410 sm anticipated to materialise by 2024, respectively. After a long period of no new supply, Thu Duc City is poised to see a surge of new office space which includes 75,000 sm coming online with Vinhomes Grand Park in District 9. Though this addition is not expected to affect the Grade B market performance in CBD, it is nonetheless a significant amount of new supply that will directly compete with decentralised areas such as other parts of Thu Duc City, Saigon South, and north-west Ho Chi Minh City.

Overall, Grade A rents are expected to peak at US$58 psm by the end of 2022 before dropping in 2023 – 2024, while asking rents for Grade B space will continue to slide while staying at 55% of Grade A’s to accommodate new supply across both grades.

“Our view is that in the near future Ho Chi Minh City will remain a landlord’s market. That said, with large new supply entering the market in 2023 & 2024, especially if new buildings offer attractive rents and incentives, the market balance will shift towards the tenant. Regardless of the market dynamics at play, we advise tenants to monitor the situation closely and plan early to absorb costs associated with an office move, on top of the negotiated rent and appoint good Tenant Representation. As most multinational companies are now moving into budgeting season, the outlook for 2023 & 2024 is currently in the hands of CEO’s & CFO’s and they should be in-tune with shift in supply in 2023 were there may be some great deals to be sourced.” added Mr. Leo Nguyen.