Vietnam’s Grade A office vacancy still tight at 9.5%

Vacancy increased 292bps compared to the same period last year.

In 1Q21, Grade A offices recorded a net absorption figure of 547 sqm, driven by large lease transactions (greater than 1,000 sqm each) in newly added buildings. Meanwhile, JLL says many long-standing buildings continued to witness negative net absorption as a result of the soft demand brought about by economic uncertainty.

Demand continued to be driven by technology and insurance companies in 1Q21 and most of the signed transactions were for expansion purposes.

Here’s more from JLL:

The tight vacancy environment persists

No new Grade A offices were completed in the quarter. Total Grade A stock stood at 229,100 sqm at end-1Q21, while Grade A vacancy remained tight at 9.5%.

Compared to 1Q20, the Grade A vacancy recorded an increase of 292 bps y-o-y. Softening demand under the COVID-19 outbreak and large vacant space in newly completed projects contributed to the rise.

Rents remain resilient

Grade A rents increased slightly by 0.4% q-o-q to USD 47.9 per sqm per month, thanks to the recovery of the rental level in Lim Tower 3 building. The building reached a sufficient occupancy rate (65%) after offering a rental discount of just one quarter. Most landlords remain confident as the current market is tight and only limited future supply is expected.

The COVID-19 outbreak limited new investors from entering the market in the quarter. Regardless, capital values grew by 8.1% y-o-y in 1Q21 with yields compressing to 7.4%, a new recorded low. This was due to many existing investors still looking for opportunities amid the pandemic.

Outlook: Limited vacancy to support rental growth but at a slower pace

No new Grade A supply and a very limited number of Grade B buildings are expected to be completed in the next 12 months. The Grade A market will likely remain tight since no new additions are expected and all existing buildings have posted high occupancy rates.

As demand will likely stay subdued until the virus has been globally contained, rents are expected to grow at slightly higher pace compared to 2020, yet still lower than the 2017-19 period.

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