The Hanoi office market fared relatively well in the first quarter this year despite the COVID-19 pandemic, according to CBRE Vietnam.

Total office supply in Hanoi is around 1,380,000 sq.m in the first quarter.
(Photo: tapchitaichinh.vn)

In the first quarter, total office supply in Hanoi was around 1,380,000 sq.m, unchanged compared to the fourth quarter in 2019 because there were no newly completed projects.

Both average asking rent of Grade A and Grade B buildings remained stable compared to previous quarter, at US$26.2 and US$14.3 per sq.m per month, respectively, excluding value added tax (VAT) and service charge.

In terms of vacancy rates, both grades stayed at healthy levels of below 10%. Grade A’s vacancy rate reached 6.4%, dropping by 2.9 percentage points (ppts) year-on-year while Grade B vacancy lowered to 8.8%, down by 0.5 ppts year-on-year.

Although not as heavily impacted as other sectors, the office sector started to observe some early impacts from the pandemic, according to CBRE.

Current tenants are requesting landlords to reduce rent by 20-50% due to their worse business performance during the pandemic, said Do Van Anh, CBRE Vietnam manager.

Asking rents have yet been adjusted, but certain Grade B buildings have applied discounts from 20-30% for their tenants from three months to end of 2020. Other supports, such as extending the payment schedule, are also applied, she said.

Moreover, most of the office leasing transactions in the first quarter were postponed or cancelled due to capital constraints and travel restrictions. Therefore, the total net absorption of Hanoi office market was only 8,900 sq.m in the first quarter.

This was the lowest absorption rate recorded since the second quarter of 2013, according to CBRE Vietnam.

During the period 2017-19, the banking, finance, insurance and information technology sectors had the highest demand on leasing office to expand branches, Van Anh said. However, at present with the COVID-19 pandemic, they must consider their business strategy, so they delay the leasing of offices to open branches.

In the last three quarters of 2020, the market will heavily depend on the pandemic. In case COVID-19 could be contained within the second quarter of this year, performance would not be significantly affected, as most of the delayed deals in the first quarter would be restarted.

In case the pandemic extends to the end of September 2020, rents of both grades are expected to drop by 5-10%, while vacancies are expected to increase by 5-15% due to the resizing and closing of tenants’ offices.

According to CBRE, the outbreak of COVID-19 could reshape the office sector. Tenants would focus more on the agility of the office to adapt to unexpected changes in the business environment.

Landlords also need to apply new technology and new procedures to protect the wellbeing of people working inside the building.

Though suffering under the pandemic, the Hanoi property market expects to have new launches of 126,000 sq.m of offices for this year. Some large office supply projects on the Hanoi real estate market are under construction to complete at the end this year as scheduled, including Capital Place in Ba Dinh district and Thai Building in Cau Giay district, Van Anh said.