Time to re-examine your office rent?

Summary

Demand from new and existing customers for offices in HCMC has plummeted due to gloomy economic conditions and lower FDI growth.

Analysis

Demand from new and existing customers for offices in HCMC has plummeted due to gloomy economic conditions and lower FDI growth. We have noticed a wave of vacant space in most of the city’s grade B and C office buildings, and have learned that as a result, rental fees have decreased 30% on average.

 

In early 2008, when demand for office space peaked, average rental fees for grade A space reached US$80-US$100 per square metre (sqm). A year later, the maximum rental fee for that category has fallen to approximately US$70. Grades B and C rates have dropped by half in certain places. Most real estate experts reckon rates will fall even further as a result of strong supply being launched from now until the end of 2009. CBRE estimates that there will be 1.25 million sqm completed in the city; 695,000 sqm of grade A office space, 550,00 sqm of grade B and 910,000 sqm of grade C.

 

Lacking any catalyst to prompt demand in the short term, we feel that the HCMC office market will remain oversupplied through at least the end of 2009 and quite possibly into 2010. This may be an opportunity for SMEs to negotiate cheaper rents with their landlords. One Malaysian manager setting up shop in HCMC said: “In Kuala Lumpur, we pay less than US$30 per sqm for grade A. However, when we came here last year, we were very surprised by how expensive HCMC rentals were. HCMC office space is one of the most expensive in Asia. Prices need to come down more”.