Office for lease in Hanoi (Photo: vietnambiz)
Hanoi (VNS/VNA) – Foreign investors have shown increasing interest ingrade A offices in Hanoi, according to Savills Vietnam.
Hanoi is one of the two mostdynamic office markets in Vietnam and high demand and limited vacant spaceare pushing rents up. The latest Savills research found demand has remainedstable throughout the pandemic while most other real estate segments sawsignificant declines.
In the first three quarters ofthis year, Hanoi's GRDP increased by 3.3 percent year-on-year, while nationalGDP increase 2.1 percent. The Asia Development Bank forecasts Vietnam GDP willincrease by 1.8 percent this year, while other Southeast Asian countries areset to decline. With a 6.3 percent growth forecast for 2021, Vietnam will leadSoutheast Asia.
Free trade agreements (FTAs) willpositively affect market performance because of tariff commitments, highcompetitiveness, strong foreign direct investment (FDI) and economic growth.Continuing US-China trade tensions will see more multinationals mullingmanufacturing shifts to Vietnam.
Overseas tenants, particularlyFDI enterprises, are interested in quality office space. Hoang Nguyet Minh,Savills Vietnam Associate Director of Investment, said: “There are core factorsthat make Hanoi offices one of the most attractive segments for overseasinvestors looking for a position in Vietnamese real estate.”
First is increasing FDI inflowscorrelating with rising office space demand. Overseas investors are experiencedin developing international standard office buildings that meet foreign tenantrequirements. This also improves occupancy levels when developments come intooperation. Compared to other asset classes, office with three to five-yeartenancy agreements allow steady investor cash flow. Adding further appealis occupancy rates staying high in major Vietnamese cities with Hanoi at about90 percent for the past five years.
Secondis profit from office buildings. Gross operating profit (GOP) is up to 30 percentfor five-star hotels and up to 50 percent for three- and four-star hotels,while the figure for office buildings in Hanoi can hit 80 percent.
This means Hanoi is winninggrowing investor attention from Singapore, Japan, and the Republic of Korea,according to Minh. Rents for Hanoi offices are lower than HCM City. In thecentral business districts (CBD), grade A office rent in HCM City is up to 60USD per sq.m, against 43 USD per sq.m in Hanoi.
The expectation is that the Hanoioffice segment will achieve parity fairly soon. Occupancy has remained stableoverall and effective containment of COVID-19 has reassured investorswhile adding further appeal to Vietnam as an operational base.
Matthew Powell, Director ofSavills Hanoi, said: “Compared to other cities in the region that have seensharp occupancy drops, Hanoi has remained an attractive and stable market. InASEAN, Hanoi office occupancy of 94 percent eased just -1 percent year-on-year tobe just behind Singapore and HCM City. This shows the potential for strongpost-pandemic recovery.”
In Hanoi by 2022, approximately192,000sq.m from 17 projects will enter with most grade A supply entering ininner areas. Notable projects include Century Tower in the fourth quarter ofthis year, Vinfast Tower and BRG Grand Plaza in 2021, and Lotte Mall Hanoi in2022.
Recently some apartment buildingpodiums have been switching use to office space. This alongside extensivefuture supply may pressure average occupancy and rents for the next two years,according to Savills Vietnam.
Lookinglonger-term, office developers will look to improve health, safety, andoperational standards. Effective management and more sustainable or green designare two areas which will help investors achieve greater success./.
