What You Need to Know: Viet Nam Office Forecast 2023

Viet Nam’s office markets continue to perform well, faring better than regional counterparts. In both cities, high-quality office developments are on the rise, which hastens the obsolescence of older assets and signals a shift toward more competitive office markets in Ho Chi Minh City and Ha Noi. Savills Office Forecast 2023 presents a detailed analysis of the dynamic office landscapes in Viet Nam’s largest cities and delivers forecasts on occupancy and rent that inform occupier and landlord strategies.

Global Office Markets

After the pandemic, global office markets are struggling. In the short term, office demand has weakened given decentralisation, post-pandemic resource reviews and altered demand. Although affected by global movements and changes to office use, Vietnamese office markets display resilience amidst the prevailing uncertainties. In Q3/2023, global office transactions fell by approximately 60% compared to the same period last year. However, according to Savills Prime Office Costs Q3/2023 report, annual gross rents, on the other hand, have remained in positive territory, increasing by 0.9% over the quarter as occupiers continue to favour best-in-class prime office space.

Office Market in Ho Chi Minh City

According to Savills Market Report Q3/2023, office stock in Ho Chi Minh City in Q3/2023 increased by 3% quarter-on-quarter (QoQ) and 4% year-on-year (YoY), reaching 2.6 million m2 NLA. This growth was driven by the introduction of four new projects totalling over 93,000 m2 NLA across all grades. The dominant force in this expansion was Thu Thiem NUA in District 2, accounting for a 90% share with its two Grade A projects, The METT and The Hallmark. The CBD contributed a 10% share to the new supply, including the renovated Grade B project, The Waterfront Saigon, and the entry of a Grade C project, L’MAK The Signature. The office occupancy decreased by 1 ppt QoQ and 3 ppts YoY but remained high at 90%. Rents rose by 4% QoQ and 7% YoY to VND 771,000/ m2/month. One of the driving factors behind this performance was the new Grade A projects in Thu Thiem NUA with gross rent averaging VND 1.2 million/ m2/month.

Looking to Q4/2023, a substantial pipeline of six new projects delivering 81,000 m2 NLA is expected. Grade A projects include The Nexus and VP Bank Saigon Tower. Over 80% of the future Grade A and B supply in the city will have green certifications.

Giang Huynh, Associate Director, Research & S22M Services, Savills Ho Chi Minh City, spoke about offices in Ho Chi Minh City: “Robust performance was underpinned by a solid demand for new Grade A projects. After years of limited premium buildings, the introduction of fresh supply attracted tenants from various industries.”

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Office Market in Ha Noi

Office stock in Ha Noi increased by 1% QoQ and 2% YoY to 2.16 million m2 NLA after the launch of Lotte Mall West Lake Hanoi with 23,000 m2 NLA. The West was the greatest supplier with a 41% share.

Gross rent of VND 513,000/ m2/month increased by 2% QoQ and YoY, largely with increases at Grade A buildings. Grade A rent increased by 2% QoQ to VND 824,000/ m2/month. Office occupancy in Ha Noi rose by 1ppt QoQ but decreased by -2 ppts YoY to 85%. Q3/2023 also recorded the highest take-up since 2020 at 44,500 m2. Grade A continued to prove its popularity in attracting new tenants, particularly foreign companies scouting premium locations.

By 2026, more than 256,000 m2 from 13 projects will be introduced; approximately 77% will be Grade A. Given rising ESG commitments, properties like 27-29 Ly Thai To, Grand Terra, and Tien Bo Plaza are expected to deliver 68,400 m2 of green office space by the end of 2025.

Browse premium offices in Ha Noi.

Why Occupiers and Landlords Need Accurate Office Market Forecasts

Savills Office Forecast 2023 uses science to assess future office real estate performance metrics like occupancy and rent. By considering a multifaceted approach, the analysis looks at market conditions, economic indicators, supply, and demand dynamics, as well as tenant preferences to generate informed forecasts. Forecasts support informed decision-making for occupiers and developers.

For occupiers, office rent forecasts support security in financial planning and cash flow because they anticipate fluctuations in office space pricing. Occupiers can make informed decisions regarding their office space requirements, lease negotiations, and cash flow planning. Under International Financial Reporting Standards (IFRS), multinational tenants also need to carefully consider rent escalation rates when calculating lease commitments. With precise and data-driven forecasts, occupiers can optimise budgets, mitigate risk, and ensure sound financial planning.

Accurate office forecasts support developers in structuring leases that deliver the best possible returns. By utilising market data and analysis, developers can align lease agreements with occupier needs and market demand. This approach enables developers to optimise lease terms, such as rental rates, escalation clauses, and lease durations. By tailoring leases with accurate forecasts, developers can attract and retain high-quality tenants, minimise vacancy rates, and maximise rental income.

How Does Savills Office Forecast Assess Near-Term Rent and Occupancy?

Given significant high-end office pipelines in Ha Noi and Ho Chi Minh City, Savills assessed Grade A and B rent escalation and occupancy to 2026. To deliver an accurate forecast, Savills utilised three alternate methodologies, including proxy GDP/FDI, historical average and industry shift share.

Proxy GDP/FDI involves an econometric forecast with a comprehensive tenant mix database and detailed macro inputs. By examining the historical tertiary industry component of city GDP/FDI and its correlation with occupied space, the new annual supply and demand are determined. In the historical average methodology, Savills leverages the correlation between take-up and asking rent utilising a three-year moving average. Lastly, industry shift share incorporates industry growth and the number of employees per industry, analysing data from quarterly surveys and deals to estimate the level of take-up.

Ho Chi Minh City and Ha Noi Office Forecast to 2026

Ho Chi Minh City

Before 2020, Ho Chi Minh City stood as a landlord's market, characterised by limited new supply and high occupancy rates. However, this has shifted somewhat since 2021, and economic headwinds and the constraints imposed by the pandemic have slowed down the city’s growth. According to the Savills Office Forecast 2023, the Grade A&B office market in Ho Chi Minh City will welcome 200,000 m2 of additional supply by the end of 2026, representing a 20% increase from the current stock.

Savills methodologies disclose a range of rent decreases, ranging between 1% and 2%. Download Savills Office Forecast 2023 for more details.

The Grade A & B leased offices area in Ho Chi Minh City is forecast to grow by 6% per annum. With accelerated conversions of old developments, increased leasing activities, and deceleration in the deliveries, Ho Chi Minh City's A & B office vacancy rates will peak at 12% in the near term, with a subsequent decline to 8% from 2025.

Ha Noi

At the end of 2026, an additional 220,000 m2 of Grade A & B office space will be added in Ha Noi, reflecting a 13% increase from current stock. Like in Ho Chi Minh City, the three methodologies disclose a range of rent movements, from stable to a 1% fall by 2026.

Take-up in Ha Noi, according to two of the methods in Savills report, is forecast at 54,600 m2 between 2023 and 2026.

Upcoming large-scale office projects to 2026 will continue to pressure rent and occupancy, particularly as competition within the Grade A segment, intensifies. The introduction of nine new projects is expected to nudge Ha Noi's Grade A &B occupancy rate to a potential decline of 85%, leading to a slight softening in rents.

Structural Factors Driving Office Performance

Despite forecasts of softer rent in Ho Chi Minh City and Ha Noi, there are underlying structural drivers that could easily surpass historical averages. These include the continued growth of banking and insurance sectors; these sectors have taken significant portions of the leased areas in recent years and have high demand. The large-scale relocation of government offices in Ha Noi and educational changes may also influence office performance. Innovation, medical and science hubs could also influence future office performance in Ho Chi Minh City and Ha Noi.

Read more about the links between education and offices in Viet Nam here.

Conclusion

The Savills Office Forecast 2023 sheds light on the evolving office markets in Viet Nam. In both Ho Chi Minh City and Ha Noi, there has been an increase in the supply of Grade A & B buildings, leading to notable changes in rental prices in the near term. With valuable insights and projections grounded in research and industry expertise, occupiers and developers can make optimal decisions in office leasing to maximise their budget and attain financial certainty. For detailed insights into office markets in Ha Noi and Ho Chi Minh City, get your copy of Savills Office Forecast 2023.