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Property

JLL: HCMC demand for office space continues to outpace supply

Released at: 16:55, 12/12/2017

JLL: HCMC demand for office space continues to outpace supply

Photo: Internet Archive

Thu Thiem new urban area now considered a viable alternative to existing CBD for company head offices, JLL reports.

by Hong Nhung

With a lack of supply and increasing rents in Ho Chi Minh City’s existing central business district (CBD) and the completion of major infrastructure within Thu Thiem, it is anticipated that those with large head office requirements will begin to consider the latter a viable alternative, according to Mr. Greg Ohan, Director of Solutions Development at JLL Vietnam.

Since 2015, Ho Chi Minh City’s office performance has exceeded expected demand with impressive net absorption across all segments of commercial office buildings. 2017 witnessed four new large-scale Grade A and Grade B buildings entering the market, of which three have recorded occupancy rates of over 70 per cent since opening.

According to a JLL report, average occupancy at Grade A office buildings in the city achieved greater than 94 per cent occupancy. In the Grade B office sub-market, occupancy rates are higher than 94 per cent. This reveals extremely high demand for both mature and new buildings in both the Grade A and Grade B office submarkets.

The short-term limited supply and subsequent rising rental rates will continue to drive further investment into Ho Chi Minh City and Vietnam’s office market from existing developers and new market entrants.

The challenge now is where to invest. Given rising demand, land scarcity issues have been at the forefront of challenges keeping developers awake at night. “Our developer clients are not concerned about whether they will fill their buildings. The biggest concern is ‘How can I find my next project?’ And ‘How soon can I complete it as quickly as possible?’” said Ms. Trang Bui, Head of Markets at JLL Vietnam.

Subsequently, “we have seen the tables turn and the Ho Chi Minh City office market is currently showing signs of approaching a landlord’s market, characterized by landlords confidently raising rental rates,” she went on. “CBD rental rates are approaching the record highs experienced from 2006 to 2017. Average tenant sizes have now doubled as companies continue to expand and new entrants enter the market. Just from its own brokered transactions, JLL has seen the average tenant size in Ho Chi Minh City double versus the same period last year, up to 500-600 sq m.”

Emerging segments such as e-commerce are propelling office demand to new heights not experienced in Vietnam before. JLL recorded and concluded the largest single-broker CBD transaction in Ho Chi Minh City’s history, of 9,000 sq m in the e-commerce segment to a new entrant in a recently completed Grade A office building. Segments such as co-working, logistics, sourcing, and manufacturing-related enterprises have also been a driving force behind the rapid absorption rates being experienced in the Ho Chi Minh City office market and it is expected this trend will continue through 2018 to 2019.

With a limited land bank and few CBD opportunities for developers, many have been looking beyond the traditional CBD and towards the future. One such example is the Thu Thiem new urban area; marked as the future new CBD in Ho Chi Minh City. According to the JLL report, the master plan for Thu Thiem is aimed at alleviating the pressure being faced in the existing CBD. Thu Thiem will be home to a number of major head offices and will become a vibrant destination combining residences, offices, shopping centers, hotels, and serviced apartments.

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