Office rents in Ho Chi Minh City, the country’s financial and economic driver, continued their freefall in the second quarter of this year, a recent report from real estate service provider CB Richard Ellis (CBRE) Vietnam stated.
The average rent on Grade A offices in HCMC in the second quarter of 2009 dropped 28.8 percent from the first quarter to US$40.8 per square meter a month, CBRE said in its quarterly report.
The slide has continued unabated since early 2008 when Grade A space was being offered at up to $70 per square meter, or roughly comparable to Japan’s second-largest city of Osaka’s commercial prices.
At the time, analysts raised concerns over an over-heating property sector fuelled by an overseas foreign investment community looking to the country as the next ‘Asian Tiger’.
Those heady days have since evaporated, and with them, the fears of a bubble real estate market. Unfortunately for the city’s commercial landlords, so to has close to 50 percent of rental revenue.
In a recent interview with Tuoi Tre newspaper, CB Richard Ellis Managing Director, Marc Townsend said demand for office space is closely linked to employment and financial stability; with firms in Vietnam tightening their belts, shedding jobs and cutting costs on office rents.
Tenants are now looking for lower rents, less space and greater flexibility in leasing terms. Most tenants are also looking for space of less than 300 square meters.
Larger firms have also begun consolidating multiple offices or moving to decentralized locations which are close to the city’s central business district.
In what could be another ominous sign for leasers, CBRE forecast the city will bring an additional 194,552 square meters of office space online over the next 12 to 18 months.
In the market segment for retail venues, food and beverage and fashion retailers led the way with the opening of a number of grand-scale shopping complexes, such as Saigon Paragon in District 7 and Master Zone in District 1.
Average rents on department stores in HCMC’s downtown in the period remained constant from the first period at $110 per square meter.
The average vacancy rate of retail venues of all types was up to six percent and shopping space in HCMC’s central areas, such as District 1, remained the most sought-after locations.
CBRE expected rents to soften slightly in the third quarter with additional retail locations, such as Kumho Asiana Plaza, become available on the market.
Serviced apartment monthly rents in HCMC also followed the same trend with Grade A apartment rents dropping 11 percent from the first quarter to $32.35 per square meter. Grade B rents also declined by four percent and Grade C by five percent.
Grade A buildings are suffering from declining demand as tenants switched to cheaper serviced apartments. Apartments of second and third classes have also experienced decreased occupancy rates as expatriates left Vietnam or relocated to non-serviced units.
To cope with a decline in tenants, landlords are offering weekly and daily rates, making serviced apartments fierce competitors to local four- and five-star hotels.
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