Ho Chi Minh City’s roaring commercial property market continued its rise over and above pre-pandemic levels in Q2 of this year, with scarcity remaining the underlying theme of the market.

Grade A office space citywide has reached an average asking price of US$57.71 per square meter, a 5.2% increase YOY and a return to 2020 levels. No new commercial Grade A inventory has entered the market in the first half of this year to offer tenants any additional relief.

Current vacancy rate for Grade A space is hovering at 6.6%, 7.1% lower than the same period last year when the city was in the early stages of its prolonged social distancing period.

Both Grade A CBD and Grade A Saigon South increased slightly over the previous quarter, with Grade A CBD recording US$62.67 as landlords remain confident with their prime space scarcity, while Grade A Saigon South reported US$34.09 due to landlords’ ability to offer larger floorplates than those available in more central locations.

Mr. Leo Nguyen, Director of Occupier Strategy & Solutions, Knight Frank Vietnam said: “Tenants still prefer to be in centralized locations, unless they want a floorplate over 1,000 sqm while keeping their allocated budget in mind. In that care they are looking to move away from the CBD to other sub-markets as we observed Grade B net absorption of nearly 4,000 sqm that mostly came from CBD-fringe and non-CBD areas.”

Grade B recorded steady performance with average asking rents for Grade B at US$33.79, increasing 5.9% y-o-y but decreasing 0.7% q-o-q with some Grade B buildings in the CBD and the CBD-fringe decreasing their asking rents to attract tenants.

Grade B vacancy rate ends the quarter at 8.2%, 0.7 percentage points higher than at the end of Q1 in a period of mixed news. One major development on the city fringes delayed its planned Q2 opening until year’s end, putting additional pressure on inventory. However, trends among tenants towards upgrading, relocating out of the CBD, or offering employees additional flexibility with their working locations offering some additional relief in turn.

Major transactions for this quarter saw the majority of tenants from the technology sector (44%), co-working spaces (14%), construction (13%), and real estate (12%) cumulatively taking up most of the leased space. Relocation (66%) and expansion (20%) still accounts for majority of major transactions, with 14% of new acquisitions coming from real estate, banking, and tech.

Looking forward, Grade A and B average asking rents are expected to be on divergent path with current Grade A buildings expected to increase their rents before incoming Grade A supply of 184,478 sqm NLA arrives in 2023 and 2024.

Grade B buildings are expected to hold their rents steady before reducing further to remain competitive with new Grade A and Grade B in 2023 and 2024.

“With total new supply coming to more than 400,000 sqm for both Grade A and B from now until 2024, vacancy rate for both grade is expected to increase to nearly 10% as the market will take time to absorb newly built offices, which will provide tenants with multiple relocation and expansion options across the city,” Leo commented.

• Note: Asking rents are inclusive of Service Charge and exclusive of VAT.