Hanoi Grade A office rents inch up 0.1% in Q1
Net effective rents were at USD 26.8 sqm per month.
A recent JLL report reveals that net effective rent in Hanoi’s Grade A office market stood at USD 26.8 sqm per month, an increase of 0.1% q-o-q and 0.4% y-o-y. Although this is considered healthy growth, it is still lower than the pre-COVID-19 level.
As businesses have returned to normal operations in 2022, JLL says some Grade A buildings have increased their rents to the pre-lockdown level. However, landlords are still willing to negotiate with tenants for more flexible leasing terms on a case-by-case basis.
Here’s more from JLL:
Net absorption increases as businesses return to the new normal
Net absorption increased in 1Q22, reaching 4,400 sqm as businesses returned to the new normal. Consequently, vacancy rate dropped to 18.8%. However, since businesses are still suffering from the after effects of COVID-19, and the number of cases in Hanoi remains high, many tenants have decided to either postpone or cancel their lease requests.
Most new enquiries are for small to medium-size spaces (250-400 sqm) in buildings in CBD area. There was one notable enquiry for 2,000 sqm in Capital Tower by a Japanese tenant in 1Q22. Technology firms remain the main demand drivers in 1Q22. However, in the next quarters, the office market is expected to warm up with many relocation activities from the banking and services sectors.
No new Grade A supply enters the market
There was no new supply from Grade A buildings in 1Q22. Hanoi Grade A Office will stay muted until 4Q22, when two small-scale Grade A-quality buildings will be put into operation by the end of this year.
The lack of new supply over the past two years can be partly explained by the impact from the complicated COVID-19 situation in the last two years. Furthermore, developers are taking a more cautious approach when developing new projects during this uncertain period.
Outlook: Two new Grade A projects are set to enter the market in 4Q22
Due to the availability of better information, Techcombank and Lancaster Luminaire were added to the future supply pipeline, bringing total Grade A supply to 598,357 sqm NLA by end-2022. As Covid-19 is well-controlled and the economy is opening up, demand is projected to recover. Given the high rent expectations for Techcombank, the average net effective rent will rise by 4.4% y-o-y by end-2022.
Net absorption of Grade A market is expected to improve and vacancy rate to decrease to 17.7% by end-2022, as new buildings with large vacant space could moderately fill-up as borders are opened and foreign tenants can easily travel to Vietnam to make leasing decisions. It is likely that tenants with resilient business growth, such as technology and real estate, will continue to be demand drivers.
Note: Hanoi Office refers to Hanoi's Grade A office market.