Here’s why Vietnam office vacancies remain tight at 12.4% in Q1

This is because most Grade B buildings are small-scale with limited leasable area.

According to JLL, two Grade B buildings and one Grade C buildings completed in 1Q21, adding nearly 35,000 sqm of office space to the market. Location-wise, Go Vap District contributed nearly half of the new supply with two new buildings, helping expand further the office cluster surrounding the airport. Following the completion of APC Building last quarter, Binh Thanh welcome one more Grade B building namely CII Building. This project was leased out to one anchor tenant in 1Q21.

Since most of the new Grade B buildings are small-scale with limited leasable area, coupled with no new Grade A buildings added in the quarter, Grade A &B vacancy remained tight at 12.4%. 

Here’s more from JLL:

In 1Q21, Grade A and Grade B recorded net absorption of approx. 500 sqm each, driven by large lease transaction (greater than 1,000 sqm each) in newly added buildings. Meanwhile, many longstanding buildings continued to witness negative absorption amid soft demand caused by economic uncertainty. Demand continued to be driven by technology and insurance companies in 1Q21 and most of the transactions were signed for expansion purpose. 

Rents remain resilient 

The average rents of Grade A&B market remained stable at USD 30.6 per sqm per month in 1Q21, inched up 0.5% q-o-q and 2.1% y-o-y. While most districts recorded stable asking rents, District 7, home to many new completions recently, witnessed the asking rent increase by 2-3 % q-o-q. 

The increasing activities in office developments in District 7 recently has gradually shaped a distinct office cluster in this area with better rental level compared to District 1, the traditional office cluster of the city. However, amid the currently soft demand, landlords of newly-completed buildings have been under pressure to lease space and thus often offer favourable rental concessions and flexible negotiation terms to support and attract tenants. 

Outlook: Limited vacancy supports rental growth but at a slow pace 

Very limited new supply is expected till 4Q21. Only two Grade B buildings in Non-CBD area will be completed in the next nine months, adding nearly 20,000 sqm office space to the market. Grade A market will remain tight since no new addition is expected and all existing buildings have posted high occupancy rate. As the demand likely stays subdued until the virus is globally contained, rents expected to grow at higher pace compared to 2020 yet still lower than 2017-19 period.