The final quarter of 2022 represents something of a guard-changing in Ho Chi Minh City’s office property market according to data released today by Knight Frank Vietnam – with a transition from a landlord-favourable industry to a tenant-favourable industry set to begin early in the new year which will be the first time since 2018 that tenants had the upper hand in negotiations.

Capping off a year that proved solid for landlords, this quarter saw moderate y-o-y rent increases for Grade A landlords to the tune of 2.6%, and a positive net absorption mostly coming from Saigon South sub-market.

However, the dawn of the new year is set to bring with it a parade of new inventory, with Saigon-wide Grade A and B office space to rise by 333,387m² in the next two years, representing a 23% increase on total inventory with the first new projects expected to come online in Q2 2023.

This, in turn, is set to offer reduced asking rents from landlords to the tune of about US$2 per m² per month from current city-wide averages. Current data places Grade A office space averaging US$57.73 per m² per month with a vacancy rate of 5%, while Knight Frank is currently predicting those rentals to fall to around US$55.50 per m² per month, while vacancy rates rise significantly to around 20% by the time the sun sets on 2024.

Grade B occupiers are set for even more favourable tenancies with average rents – currently US$33.68 per m² per month – projected to fall into the US$27 per m² per month range in the same period.

The broader economy is seemingly on tenants’ minds as well according Mr. Leo Nguyen, Director of Occupier Strategy & Solutions at Knight Frank Vietnam, with occupiers weighing up their options for relocation, expansion, and flexible working locations against a backdrop of potential economic headwinds in the quarters ahead.

“Particularly with Grade A tenants, we see a shift toward cost-conscious decision-making processes in their selection of office space as they attempt to balance their need for quality, green-accredited and centrally located buildings with their need to navigate potential economic uncertainty in the near future,” he said.

The property leader’s data highlighted several key sectors as driving demand for office space around the city this year, with logistics (19%), financial services including banking and insurance (16%) and technology (14%) dominating the major transactions for the year and proving themselves as the industries with the highest appetites for central office space and it should be noted that these sectors normally have modest rent budgets.

Ho Chi Minh City’s fringes continued to offer good value to space-hunters, notably in terms of its Grade B offerings, with favourable rents in the US$27-34 range considered a worthwhile trade-off for the additional CBD commute times required of tenants.

Saigon South has also emerged as a tenant-favourable sub-market, where rents averaging $22.40 per m² per month along with highly sought-after larger floor plates offsetting a less-friendly commute for many staffers while offering excellent local amenities and cityscape.

Flagged as Grade A space to watch, the emergence of the two towers of Thu Thiem – just a three-minute bridge-hop from downtown Saigon – are set to reframe much of the conversation over HCMC’s commercial property sector, Leo continued.

“These buildings – along with several other high profile CBD developments – will shift the overall market situation from landlord-favourable to tenant-favourable. Landlords looking to attract tenants from 2023 onward will need to look closely at possible renewal rates, where typically tenants have a capped renewal rent offers in their leases which would be lower than the new buildings asking rents.”