CBRE Predicts Grade A Office Rent to Rise

Diep Nguyen

16:53 09/07/2018

BizLIVE -

According to CBRE, Grade A’s rent is expected to continue to increase in the second half of 2018 under current good market condition.

CBRE Predicts Grade A Office Rent to Rise
There was no new Grade A and B office supply in the first half of 2018. However, in second half of this year, there will be 125,000 sm expected to come on line, which increase the Hanoi total office supply to 1.4 million sm. Given the positive construction progress, Grade A is expected to welcome new project this year – one year earlier than initial plan.
Market performance this quarter continued to show clear recovery in both grades. For Grade A, the asking rent increased by 0.6% quarter-on-quarter and 3.8% year-on-year staying at US$25 psm pm (excluding VAT and service charge). 
The remained vacant area in Grade A continued to be absorbed leading to a 0.7ppt quarter-on-quarter decrease and 4.6 ppts year-on-year decrease in vacancy rate. End of the second quarter 2018, the average vacancy rate of Grade A building in Hanoi stayed at 6.6%. 
For Grade B, the asking rent slightly declined by 0.3% quarter-on-quarter staying at US$14 psm. Given the competitive rental rate, vacancy rate of Grade B significantly decreased by 3ppts quarter-on-quarter – strongest decrease by quarter since early 2015.
Demand-wise, net absorption was around 24,000 sm in the second quarter of 2018, up by 23% quarter-on-quarter. Along with the strong economic growth, there has been increasing demand for new office and expansion based on CBRE’s enquiries. Additionally, due to limited new supply in Hanoi CBD, tenants have tendency to renew existing contracts. 
A significant trend in the first half of 2018 is the increase in demand for long-term lease (longer than 10-year tenure). In terms of purpose, there are two typical types of tenants including investors to sublease and owner-occupied tenants. Investors tend to require large areas of more than 1,000 sm, meanwhile owner-occupied tenants require area fitting their business model, of typically range from 500 – 1,300 sm.  
Looking forwards, Grade A’s rent is expected to continue to increase in the second half of 2018 under current good market condition. Meanwhile, Grade B’s rent is expected to remain stable given stronger competition. Since the new projects are anticipated to complete at the end of the year, the vacancy of Grade A and B would temporarily increase to 8% and 18%.

DIEP NGUYEN