What is the orientation for the Grade A office market in Ho Chi Minh City?
The period from late 2022 to early 2023 witnessed an economic downturn. This has greatly impacted the office market, especially the Grade A Suburban segment including Integrated Business Park in Ho Chi Minh City. Let’s recap the notable points of the office market in the first quarter of 2023 and highlight what to pay attention to.
Office market in the first quarter of 2023 in Ho Chi Minh City
The recorded data
Businesses are currently encountering several challenges. These include diminished domestic consumer demand and the potential disruption of global supply chains. Additionally, they must navigate global events such as energy crises and the ongoing Russia-Ukraine tension. All of these factors have contributed to a sluggish market, with the first quarter of 2023 witnessing Ho Chi Minh City’s GDP growth rate reaching only 0.7%. Even leading global economies like Germany have slid into a deep economic recession. It is evident that the sluggish economic growth in Ho Chi Minh City and across the country is an inevitable consequence of the current global economic and political uncertainties.
The year 2023 is predicted to witness economic downturns in many major economies
In the first quarter, for the first time in many years, the number of businesses closing was higher than the number of new and re-operating ones of 56,946, which decreased 5.4% compared to the same period in the previous year. Meanwhile, the number of temporarily closed and dissolved businesses reached 60,241 reflecting an increase of 17.4% compared to the same period. Particularly only in Ho Chi Minh City, there were 13,500 businesses closed – a 14% rise compared to the same period of the previous year. The total newly registered capital of businesses was 88.9 trillion VND, a 39% decline year-on-year. It is evident that the scale of businesses is contracting. (Data from the General Statistics Office of Vietnam)
The reason
The decline in both the quantity as well as the scale of businesses has led to a cooling off of the office market in Ho Chi Minh City. Particularly, the occupancy rates in the Grade A and Grade B office segments have decreased compared to the previous quarter, by 0.7% and 2.7% respectively. Businesses tend to maintain or reduce office space instead of expanding their office scale to save operating costs.
Businesses looking to switch office locations are facing difficulties. This is due to the new regulations on fire prevention and firefighting issued in Circular No. 06/2022/TT-BXD. The new regulations have increased rental costs and complicated the office construction process. As a result, many companies are hesitant to relocate or rent new office spaces.
Certain office projects may be “suspended” due to a lack of fire safety certificates. In fact, businesses are unable to obtain business licenses as they do not have fire safety certificates. This prompted Prime Minister Pham Minh Chinh to issue an urgent directive on April 5th 2023, to address difficulties in granting fire safety permits.
The challenges in obtaining fire safety permits have posed obstacles for numerous businesses
Overall, the office market in the first quarter of 2023 in Vietnam has not shown signs of strong recovery. However, experts predict that the economy will become more stable by the second half of 2023.
Present status of Grade A Suburban in both the CBD and suburbs areas of Ho Chi Minh City
The current situation
The supply of Grade A Suburban in the central business district of Ho Chi Minh City is currently limited, with a total area of nearly 320,000 square meters, of which only around 2,500 square meters are vacant, resulting in a vacancy rate of less than 1%. Due to the limited land availability in the central business district, the future supply of Grade A Suburban may not be sufficient to meet the demand of many businesses. Moreover, rental prices in this area are very high compared to outlying areas such as District 2 or Thu Duc (old).
Grade A Suburban prices are more competitive while offering similar quality compared to those in the central business districts
Recognizing the escalating demand and supply of Grade A Suburban, leading global real estate service providers such as Savills and Cushman & Wakefield have introduced new standards for this type of offices.
The “Grade A Regional” offices
Specifically, Savills has introduced the “Grade A Suburban” classification targeting office spaces with good development quality located in well-planned urban areas. Meanwhile, Cushman & Wakefield’s office standard will place more emphasis on lush greenery and sustainable requirements as well as the amenities surrounding the office building instead of location. An example of these new offices is exemplified by OneHub Saigon, which offers Grade A Suburban that adhere to green office building standards and provide a range of high-quality amenities as well as infrastructure.
The green office Tower 1 within OneHub Saigon – The Integrated Business Park in Ho Chi Minh City
With the development of citywide infrastructure and the emergence of new economic hubs, the demand for office rentals is gradually shifting away from the CBD of Ho Chi Minh City. Offices such as those offered by OneHub Saigon are poised to become the preferred choice for numerous businesses in the future.
In an era where corporate standards such as ESG are increasingly valued, the decision to rent green offices presents a favorable solution for businesses to enhance their ESG scores. This will be the first impression for customers and partners to evaluate a business. Additionally, businesses will save on operating costs thanks to the optimal energy systems of green office buildings. However, office spaces with green certifications such as LEED, EDGE, or WELL will have higher rental costs than those without certifications.
Forecasts regarding future office supply
According to Cushman & Wakefield, the real estate market in 2023 is relatively subdued, with limited fluctuations. While there is office supply available, the demand has yet to fully recover until the second half of 2023. Nonetheless, there will still be a small number of new premium office supply in the CBD in the near future. Despite the relatively high rental costs of office spaces in the center of Ho Chi Minh City, a comparison with major cities in the region such as Singapore, Hong Kong, Bangkok, etc., reveals that the costs for offices in the CBD remain attractive to foreign businesses. This group of potential customers is anticipated to be quite significant in the future.
Along with the scarcity of office spaces in the CBD, the supply of office spaces is gradually expanding in suburban areas of Ho Chi Minh City, such as Thu Thiem, District 2, and Thu Duc. This means businesses will have the option to choose office buildings located near or outside the central business districts at a lower cost due to the shortage of Grade A Suburban for rent.
Thu Duc is currently being invested in to become a new economic and technological hub of Ho Chi Minh City
Conclusion
In the beginning of 2023, the office rental market was quite sluggish due to the impact of the global and regional economic downturn. Grade A Suburbans in the central business districts of Ho Chi Minh City are becoming scarce, leading to a trend of shifting office spaces to suburban areas. There is an increasing recognition of high-quality offices located outside the CBD. The bright spot of this trend is the new Grade A Suburban OneHub Saigon – a potential Integrated Business Park in Ho Chi Minh City. This is considered as an optimal choice for businesses looking to reduce operational costs while still having a high-quality workspace.
See more: The $70 million 1Hub Data Center
