The absence of new Grade B supply in the city's CBD can be attributed to several factors, the real estate consultancy stated in a release on Thursday.

First, rising land and construction costs have made it increasingly challenging for developers to deliver projects at Grade B pricing levels. Second, the land bank suitable for Grade B developments is limited, with the most comparable budget supply concentrated in the Grade C or lower segment.

Grade B buildings generally require floor plates of 600-1,000 square meters, meaning a minimum land area of around 1,300-1,500 sqm to ensure efficient design and functionality - a requirement difficult to secure in the CBD.

In addition, some potential Grade B projects remain on hold due to unresolved legal issues or have been delayed as developers lack the financial or operational capacity to execute them.

Alex Crane, managing director of Knight Frank Vietnam, commented: “Demand for mid-range office space continues as the main driving force in the CBD, with Grade B buildings performing very well over the last five years, but we have not seen supply keep up with demand."

"As an example, a tenant requiring 2,000 sqm today - a pretty standard size office for a multinational tenant - would have the choice of only two buildings in the CBD, both of which are now over 10 years old," he added.

Average rents for CBD Grade B space are reaching $42 per sqm per month, approximately $10-20 higher than non-CBD submarkets, Knight Frank data shows.

60% of existing CBD office buildings were built before 2015, underscoring the pressing need for upgrades to align with green standards and evolving quality benchmarks. Currently, only 17% of CBD Grade B offices have environmental accreditation, compared with 57% of Grade A buildings.

Crane added that there is both impact and opportunity: "The Grade B supply pipeline is now 60% concentrated in the Saigon South submarket and is well placed to continue to do well given the constraints in the CBD. But I would further add that there is broader confidence in other submarkets with newer, higher-quality developments, particularly those with a good catchment workforce and infrastructure improvements.

"The opportunity for owners in the CBD is clear: upgrade mature Grade B assets and actively manage space to allow larger multinational firms to occupy - all of whom require some form of environmental accreditation for their HQs."