How to Leverage Accurate Office Market Forecasts to Your Business Advantage

Global real estate dynamics are changing, especially in the office sector, and Viet Nam is not immune to these transformative forces. This article explores Viet Nam’s office markets in Ho Chi Minh City and Ha Noi, how offices in Viet Nam compare to regional peers, and how occupiers and developers should use accurate office rent and occupancy forecasts to create accurate business strategies.??

International Office Performance?

Prime office markets globally are continuing to see costs rising on average, with net effective costs increasing by 0.8% quarter-on-quarter (QoQ) according to the Savills Prime Office Costs Q3/2023. Annual gross rents, on the other hand, have increased by 0.9% QoQ as occupiers continue to favour best-in-class prime office space.?

US office markets continue to see rising costs and rising vacancy rates, with average availability rates increasing by 90 bps since 2022. Despite a decline of 0.7% in net effective costs during Q3/2023, average gross rents across North America are still on the rise, increasing by 0.5%. Intense competition for tenants, coupled with a reluctance to reduce rents, is pushing concessions higher.?

Tenant demand in Europe, particularly from the professional and business services sector, is compensating for the decline in demand from tech tenants. Steady vacancy rates are observed on average, while net effective costs rose by an average of 2.1% in Q3/2023. Annual gross rents increased by 1.1%, with significant rises in Milan, Frankfurt, and Madrid.?

The Asia Pacific region continues to exhibit stability in its office markets. However, total net effective costs have seen a marginal decline of 0.1%, mostly driven by decreasing net effective costs in China and Hong Kong where rising vacancy rates are putting pressure on rents. Ho Chi Minh City also witnessed a decrease of 0.3% QoQ in net effective costs.?

Regional Office Performance?

Office markets in the Asia Pacific region are increasingly influenced by global trends and structural challenges. While Asia may get behind in ESG development, there is a rising demand from larger companies for energy-efficient spaces and green buildings. The advancement in AI is paving the way for the emergence of new roles, and landlords should be conscious of the sectors generating employment to stay ahead of the curve.?

As outlined in the Asia Pacific Office Markets Spotlight in July 2023, Elevated vacancy rates of 15% plus have been most marked in the mainland cities of Beijing, Shanghai, Guangzhou, and Shenzhen driven by higher levels of new supply rather than any changes in working. Given that the environment is likely to remain challenging, few markets are expected to see a rapid turnaround soon and vacancy should maintain at current levels or rise marginally out to 2024.??

According to Savills Office Forecast, office vacancy in Ho Chi Minh City could peak at 12% in the near term and begin to decline to 8% from 2025. Ha Noi expects the entry of large office developments to 2026, which could lead to a decline in occupancy to 85%.??

Savills Prime Benchmark July 2023 highlights Seoul as the best office performer in the region with the highest rental growth and a very low vacancy rate, while rents in Hong Kong (down by 2.6%), Osaka (down by 1.3%) and Shanghai (down by 1.1%) were under pressure amid excessive office space and higher vacancy rates. In Viet Nam, Savills Office Forecast highlights that from 2023 to 2026, both cities could see annual rent decreases, however, these changes are likely to be between 1% or 2% in Ho Chi Minh City and stable to 1% in Ha Noi.??

Viet Nam’s Office Markets?

According to Savills Market Report Q3/2023, office stock in Ho Chi Minh City increased by 3% QoQ and 4% year-on-year (YoY) with the entry of new projects. Occupancy remained high at 90%, and rent increased by 4% QoQ and 7% YoY to VND 771,000/m2/month. In Q4/2023, six new projects are expected, including Grade A projects like The Nexus and VP Bank Saigon Tower.?

Ha Noi had a 1% QoQ and 2% YoY increase in office stock with the launch of Lotte Mall West Lake Ha Noi with 23,000 m2 NLA. Office rent in Ha Noi increased by 2% QoQ and YoY to VND 513,000/m2/month, while occupancy rose by 1 ppt QoQ but decreased by 2 ppts YoY, reaching 85%. Q3/2023 also recorded the highest take-up since 2020, with 44,500 m2 leased.???

How Accurate Office Forecasts Benefit Occupiers?

Cash Flow Planning?

Accurate office forecasts play a vital role in aiding occupiers with cash flow planning. By providing a comprehensive outlook on future office expenses, forecasts empower occupiers to strategically allocate funds, navigate potential challenges, and optimise their budgetary decisions. Precise forecasting can help enterprises comply with International Financial Reporting Standards (IFRS), which supports stakeholder confidence and fosters transparency.??

Rent Payment Optimisation?

Rent is often a significant occupier expense. Accurate forecasts enable occupiers to work with landlords to create payment strategies that align with their financial capabilities. Given the evolving office landscape, accurate office forecasts can help occupiers understand future fluctuations and how they could impact lease negotiations and planning.?

Strategic Location Decision Making?

Accurate forecasts enable businesses to make optimal decisions regarding the location of their offices whether it is identifying emerging business hubs or capitalising on cost-effective opportunities in specific regions.??

Apart from established office centres and central business districts, occupiers can use reports like Savills Market Brief to understand rent movements in potential future business hubs like Saigon Hi-tech Park in District 9, Ho Chi Minh City, is home to innovative enterprises like Intel. In Ha Noi, Starlake is an expanding hub and is increasingly popular with ICT enterprises; Samsung recently launched its US$220 million R&D centre in Starlake.?

Risk Mitigation?

Accurate forecasts act as a shield, enabling occupiers to anticipate potential challenges and proactively adapt their strategies. Occupiers can strategically plan for contingencies, ensuring they are well-prepared to address and mitigate risks that may impact their office operations. This informed approach to risk management, guided by accurate forecasts, enhances occupiers' ability to adapt to changing circumstances and safeguard their interests in an ever-evolving office landscape.?

How Accurate Office Forecasts Benefit Developers?

Strategic Investment Planning

Office forecasts help developers navigate the landscape of strategic investment. By providing comprehensive insights into market demand, these forecasts empower developers to make informed decisions about where and when to invest. Apart from emerging city locations, accurate forecasts can help investors understand the potential of satellite provinces like Hung Yen or Hai Phong in the north or Binh Duong or Dong Nai in the south.??

Optimised Project Timelines??

Accurate forecasts enable developers to optimise project schedules by aligning construction and completion timelines with market demand. This not only enhances efficiency and success of office leasing but also mitigates risks and challenges.??

Although Ho Chi Minh City and Ha Noi both retain high occupancy rates, according to Savills Office Forecast, Ho Chi Minh City has a Grade A and B pipeline of 200,000 m2 NLA by 2026, reflecting a 20% increase in current stock. Ha Noi has a Grade A and B pipeline of 220,000 m2 NLA by 2026, a 13% increase from current levels. Notable pipelines can pressure rent and occupancy, and uninformed development could result in oversupply.??

Therefore, sound forecasting helps developers to develop strategic development timelines that align with supply and demand.??

For developers with existing assets, forecasting can give accurate insights into future pricing strategies, which helps them remain competitive while ensuring they maximise rent potential.?

Sustainable Development

Green and sustainable development is on the up across Viet Nam. In Ho Chi Minh City, 80% of the upcoming Grade A and B supply will have green certifications. In Ha Noi, properties such as 27-29 Ly Thai To, Grand Terra, and Tien Bo Plaza contribute 68,400 m2 of green office space by the end of 2025.?

Savills ESG Spotlight Q2/2023 highlights that green-certified projects often command a rental premium over ‘brown’ stock. Increasingly, asset owners will have to consider how non-green or older properties can sustain occupancy and rent growth in a market that is increasingly demanding green offices.??

Future Opportunities in Viet Nam’s Office Markets?

Although forecasts highlight rent and occupancy softening in Ho Chi Minh City, there are notable underlying structural factors that may surpass historical averages. The continued expansion of the banking and insurance sectors is a key driver; these sectors are significant office occupiers in Ha Noi and Ho Chi Minh City with high demand. The significant relocation of government offices in Ha Noi, changes in the educational landscape, and the emergence of innovation, medical, and science hubs could all shape the future office landscape and performance across Viet Nam.??

Conclusion?

In the pursuit of success in the office market, occupiers and developers must leverage every available tool to their advantage. Accurate office forecasts offer both parties the ability to enhance strategic planning, optimise financial management and mitigate risks, which fosters resilience, innovation, and long-term success in an ever-evolving real estate landscape. For detailed insights into office markets in Ha Noi and Ho Chi Minh City, get your copy of Savills Office Forecast 2023.?

Developers or occupiers can contact Savills for accurate office forecasts in Viet Nam.?https://sav.li/3lh?