Grade A office rents in Ho Chi Minh City slip 0.5% in Q1

In 2023, CBD monthly rents are expected to decline 4.6% y-o-y to USD 45.6/sqm.

According to a JLL report, the Grade A CBD office net effective rent in Ho Chi Minh City was USD 47.5 per sqm, per month in 1Q23, a drop of 0.5% q-o-q owing to the inclusion of upgraded supply with lower-than-average rent. 

Despite the scarcity of premium supply, project-based net effective rent remained stable as demand slowed, suggesting tenant restraint amidst a volatile business environment.

Here’s more from JLL:

The ongoing investigations of local developers has resulted in a cautious investment market in 1Q23, with no office buildings transacted. However, stabilised operating assets continued to appeal to investors seeking secured investment opportunities with stable yields, which as of 1Q23, were at 6.5% in the CBD area.

Demand slows down, resulting in limited transactions

After its renovation, Me Linh Point Tower was upgraded and added to the Grade A basket In 1Q23, resulting in an increase of 11,499 sqm in CBD net absorption. Aside from this, demand generally slowed down, as evidenced by the negative net absorption across existing buildings, totalling approximately -3,200 sqm.

In 1Q23, tenants opted for more cost-effective alternatives, such as Grade B buildings, in response to economic uncertainty, resulting in a subdued Grade A office market. This shift in tenants’ behaviour has led to slowing demand in the Grade A office market.

Updated Grade A supply basket as the market evolves

Grade A office space for lease expanded to about 308,300 sqm, up 16,200 sqm q-o-q, primarily driven by the upgrade of Me Linh Point Tower to Grade A. The average vacancy rate experienced a slight uptick from 4.3% to 5.6%, largely due to the vacant space from newly-added projects and the negative net absorption in existing buildings with vacancies.

Remarkably, offices located in Saigon South office cluster – District 7, Mapletree Business Centre and Phu My Hung Tower, also obtained a Grade A classification in the quarter, making them the first Grade A office buildings in the non-CBD submarket, with a total supply of about 55,100 sqm and a vacancy rate of 6.6%.

Outlook: Thu Thiem NUA to be the HCMC office highlight in 2023

The Hallmark and The METT projects in the new CBD will contribute 84,833 sqm of Grade A space by end-2023. Strong leasing pre-commitments have been observed in these two future developments, thanks to their affordable rents compared to similar-quality buildings in the existing CBD area. Net absorption for the entire year of 2023 is expected to exceed 40,000 sqm in the CBD area.

CBD net effective rent is set to go down 4.6% y-o-y to USD 45.6 sqm, per month, due to lower rents in the newly-added projects. The gap among Grade A clusters should narrow down, thanks to non-CBD building improvements. The performance divergence between old buildings and new LEED-certified projects is likely to be pronounced, making asset enhancements vital for maintaining competitiveness.

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