A Drop In Output
By Thoa Nguyen
The current difficult situation of the leasing property market
“No tenant is on the second floor. Many office service companies have sent their marketing officers over to potential customers’ premises to offer leasing contracts which give customers a wide choice. The rent is low, and customers have more incentives than last year.”
This story is overheard exchanging among three white-collared workers waiting for the lift in a building on Dao Duy Anh Street in Hanoi City. The gossip shows to a degree the current gloomy situation of the property leasing market. Apartments for lease are no exception. Many tenants, who had already paid the deposit or the rent for some time, were forced to move out due to their financial difficulties.
Offices for lease lack customers despite discounts
At a building where a banner reads “office for lease” on the front in Hanoi’s downtown area, an employee says that there is a lot of vacancies offered at a price ranging from US$15 to US$30 per square meter accompanied by discounts in the first months. Similarly, many firms have given attractive incentives to potential tenants. Some even say they are willing to negotiate the rent.
According to the latest statistics from real estate services provider Cushman & Wakefield (C&W), the current rental for Grade A offices in Hanoi has fallen by nine percentage points compared to the fourth quarter last year and by 10 percentage points from the year-ago period to US$12-40 per square meter per month, depending on the location and size.
The rental fall, according to C&W, results from the strong rise in supply in the first quarter. For Grade A offices, around 290,000 square meters are now available, up 53% from the previous quarter. Market research statistics of CB Richard Ellis (CBRE) show that the office supply in Hanoi currently stays at around 985,000 square meters and there will be nearly 390,000 square meters down the line this year.
Meanwhile, in HCMC, office leasing firms have continuously offered rental discounts, reaching 2.5 percentage points in the first three months. Compared to the same period last year, the average rental of office for lease in HCMC has dropped by 10.5 percentage points to US$31 and US$17.5 per square meter for Grade A and Grade B offices.
According to Savills Vietnam, about 30% of offices in HCMC have cut rental in the first three months, leading to a drop of two percentage points year-on-year. The demand in the first quarter also witnessed a sharp fall, 70% for Grade A office and 66% for Grade B. However, the demand for Grade C office increased by 10% from the previous quarter.
Many property market research firms have forecast that facing the pressure of huge supply plus economic difficulties, rent offers will continue to fall in the second quarter.
C&W reports that despite declining rental, the occupancy rate for Grade A office in Hanoi was only 65% in the first quarter, falling sharply from the same period last year. Grade B office also saw a deep dive.
CBRE says that although the vacancy rate in the first quarter dropped from the fourth quarter last year, the rate of the entire market still stood at 25%. Richard Leech, CEO of CBRE, forecasts that this year’s occupancy rate will be higher than recent years. Both supply and vacancy rate will continue to soar, he says.
The point is, according to observers, all new contracts on the office-for-lease market are in fact businesses moving from one place to another. On the other hand, many enterprises have shifted from higher grade premises to lower grade offices or uptown locations in order to cut costs.
Serviced apartments on the same boat
In HCMC, the serviced apartment market is facing a fierce competition from “hybrid” products (partly commercial space and partly for-lease apartments) such as Diamond Island, XI Riverside and Time Square. Due to the lingering economic slump, landlords have changed their property into apartments for lease, which further slashes rental. According to Savills, both the average occupancy rate and rental on the market fell slightly in the first quarter.
Meanwhile, serviced apartments for foreigners in Hanoi have been poorly patronized. Some 2,750 apartments are currently available while the vacancy rate is almost 30%, or 800 vacant apartments. The newly-operated project Grand Plaza has 180 apartments, but the occupancy rate is under 20% while Keangnam Landmark has only attracted 30 tenants among its 378 apartments launched since January, according to CBRE.
C&W says the average rental of Grade A apartments in Hanoi is around VND700,000VND per square meter per month, down one percentage point from the previous quarter and by five percentage point from the same period last year. The price of Grade B apartment is over VND440,000, down eight percentage point year-on-year. The market this year is expected to have 500 more serviced apartments. Discounts will therefore be inevitable.
According to CBRE, the average offer rate for apartments in the first three months almost stays almost the same as late last year, at VND840,000 per square meter for foreign-managed projects and VND610,000VND for projects run by local investors. However, as around 2,750 apartments will be added to the current market, many investors are forced to accept lower rental.