Will the insurance industry "heat up" the office rental market in 2016?

According to Savills Vietnam's forecast, in 2016, the banking, finance and insurance industries will have the highest demand for office space.

According to Savills Vietnam, the office rental market in 2016 will continue to be positive with increasing demand.

Demand increases, prices will increase by over 10%

To prove this forecast, Savills Vietnam analyzed: Vietnam's GDP is expected to grow well in the next 3 years and many industries will develop strongly, positively affecting the demand for office space. Among the 23 industries, finance, insurance and banking are the industries that will have the highest demand for office space.

Office rental demand will increase in 2016

This demand will come from both domestic and foreign companies. In Ho Chi Minh City, office rental demand is expected to increase by 13% in 2016 and 14% in 2017; while in Hanoi, the growth rate is predicted to be 11% in 2016 and 15% in 2017.

Along with that demand, it is forecasted that in Ho Chi Minh City, the rental price of class A and B office floors will increase by about 4% in 2016 and 9% in 2017. Buildings in central locations may have rental prices increase by up to 10%. In addition, in Hanoi, the average rental price of class A and B is expected to grow by 4% in 2016 and stabilize (decrease by 3%) in 2017.

In particular, the outlook for this market is very positive. In the short term, demand from foreign companies will remain high. Trade agreements such as the Trans-Pacific Partnership are expected to attract and expand businesses, especially manufacturing, distribution and logistics. GDP has maintained a positive growth rate in recent times, along with an increase in the number of newly registered domestic enterprises, improving domestic demand. With limited new supply, rental prices are likely to increase in the short term.

Savills Vietnam believes that real estate management strategies for businesses to optimize space and costs are now playing a very important role. There are many factors affecting the market. For example, in Ho Chi Minh City, the infrastructure will change very quickly, including the metro system connecting Thu Thiem with the existing central area. Tenants requiring large rental areas at reasonable rental prices have very limited options, but in the next 5 years there will be many better options. In the short term, companies wanting to expand their office space will have very few options due to the limited large floor space.

Regarding the business opportunity of office buildings with long-term leases, Savills Vietnam assessed that “it is quite attractive if exploited effectively. Currently, Vietnam has allowed the purchase and sale of this type of real estate. The office market in the short term will have interesting changes before new office buildings are built. In the medium term, old, outdated buildings will reduce the value of the current supply, so renovation will have to be considered”.

Macroeconomic improvement, office rentals "warm up"

Looking back at 2015, Savills VN assessed that Vietnam's economy is on the path to recovery as gross domestic product (GDP) and foreign direct investment (FDI) increased sharply, positively impacting the demand for office space for rent.

Demand for Grade A and B office space is increasing in Vietnam’s two main cities. In Ho Chi Minh City, buildings with large floor areas are currently quite limited. Large tenants will need to plan to choose office space well in advance of the lease term ending. Therefore, investors of some Grade A buildings are planning to increase rental prices, although the current market rental price is at 46 USD/m2/month.

In Q3/2015, the average occupancy rate of Grade A and B office buildings was 93%, up 2 percentage points year-on-year. Grade A occupancy rate reached a six-year high of 96%. In Hanoi, the average rent for Grade A and B office buildings in Q3/2015 was USD21/m2/month, down -0.2% year-on-year.

Surveys of tenants show that the demand for Class A and B offices in both cities comes largely from foreign companies. In Ho Chi Minh City, foreign companies account for 76% of the leased area, while this rate in Hanoi is 66%. If classified by industry, finance, banking and insurance companies are the main tenants of Class A and B offices in both cities, accounting for 28% in Ho Chi Minh City and 30% in Hanoi./.

According to VOV