Real estate experts CBRE reported that while A grade office leasing in Ho Chi Minh City had slipped, B and C grade continued to shine in the 3rd quarter.
The rate for A-grade offices has fallen to $36.70 USD per square metre per month (compared to $37.51/m2/month in the 2nd quarter). Meanwhile, B-grade offices are being leased at rates of over $20/m2/month.
This is the first increase in the office rental market since the final quarter of 2009 although the increase is only seen in the B and C grade projects.
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| The rate for A-grade offices continues to fall |
Explaining the above increase, CBRE’s senior research manager Rudolf Hever said that Ho Chi Minh’s good economic recovery is seeing companies moving from small houses to big office buildings, which results in high demand for offices.
Banks, schools and service enterprises are among the main customers, who tend to choose B or C grade offices in the city’s centre. These offices have a small area but reasonable rental costs suitable for longer-term renting.
As such, though 8 C grade and 1 B grade buildings have been opened during the 3rd quarter, supplying more than 63,000 m2 in Ho Chi Minh City, the rate is still climbing. Meanwhile, A grade offices haven’t seen any new supply but the rate is still falling.
In addition, another reason for the declining demand and cost of A grade offices is explained as competition from customers. They buy some areas in the buildings with preferential prices and then lease out at a rate of 15-35% lower than that announced by the building owners.
At the review on Ho Chi Minh City’s property market in the 3rd quarter, Rudolf Hever announced good news for the office rental market: “The total area of office leased during the 3rd quarter was over 62,000 m2, raising the total area leased in the 3 quarters to over 194,000 m2, which is higher than the number for the whole year of 2009 (nearly 154,500 m2).”
Over the past five years, Ho Chi Minh City has, on average, leased 150,000 m2 new offices every year. 2010 saw positive signs in this market, which Rudolf Hever estimates will reach a total area 220,000 – 250,000 m2 this year.
This shows a good sign of the city’s economy and Rudolf Hever foresees that the demand for this market will continue to rise in the coming future. He, however, also thinks that the rate will decrease, especially at those buildings with less demand.
Rudolf Hever’s prediction is based on the reality that Ho Chi Minh City is going to have another huge supply for this market. In the final quarter of this year, 100,000 m2 of new office area will be provided, including the Bitexco Financial Tower which will supply 37,000 m2 of A grade offices. Therefore, the rate for A grade offices will fall sharply.
In the next 3 years, Ho Chi Minh City will have 1.2 million m2 of new office space for lease.
With this huge supply, old office buildings will face tough competition. Many of them are planning to upgrade their facilities but it is still hard for them to keep the present renting rate.