Hanoi finally welcomes new Grade A office project after two years | Real Estate Asia
, Vietnam

Hanoi finally welcomes new Grade A office project after two years

It is a 23,000sqm project located in Dong Da District.

After two years without any new for-lease Grade A supply, a JLL report revealed that Hanoi’s office market welcomed the 23,000-sqm (NLA) Lancaster Luminaire project in Dong Da District. 

In addition, as the market evolves, JLL has updated the tracked basket with 13 buildings that were downgraded to Grade B (seven owner-occupied, six for-lease). Accordingly, the Grade A basket has decreased to just more than 471,000 sqm NLA. 

With the introduction of new supply and the weakened demand, the vacancy rate overall was temporarily pushed up to 23.3%, up by 3.4% q-o-q.

Here’s more from JLL:

The Grade A office leasing market reported positive demand yet continued to slow down as businesses grow cautious about relocating or expanding their offices in the face of economic uncertainty. Net absorption in 1Q23 was 3,637 sqm NLA, down 17.6% q-o-q and 16.8% y-o-y.

Most new leases were from international firms, for space in Capital Place and Lotte Center, with a net absorption of 5,008 sqm. Despite being a new completion paired with intensive marketing effort, Lancaster Luminaire recorded only modest absorption, due to its inconvenient location and accessibility.

Rents remain unchanged across the board

In 1Q23, the average CBD Grade A net effective rent was USD 32.9 per sqm, per month, increasing 1.76% q-o-q due to a change in the tracked basket. On a project basis, rents remained unchanged q-o-q in most buildings. To attract tenants, some landlords have offered discounts or extended fit-out periods as incentives, especially for office plots with no view.

No investment transaction was recorded. In the CBD, capital values inched up 1.76% q-o-q while market yield remained stable q-o-q at 7.3%. However, supported by the economy’s solid long-term foundation, market yield for Grade A offices in CBD is expected to compress to 7.05% by end-2023.

Outlook: Large new supply and weakening demand to impact vacancy

In 2023, an addition of around 64,000 sqm to the Grade A office market from three new buildings is expected to push up vacancy, in the context of weak demand recovery. In the CBD area, Diamond Park Plaza and 36 Cat Linh will contribute around 43,000 sqm. In the non-CBD area, the office component of the mixed-use Lotte Mall Tay Ho will offer 21,000 sqm of premium office space.

Given the expected diminishing number of newly-established firms amidst economic headwinds, CBD net absorption in 2023 is projected at around 19,000 sqm, down by 30% y-o-y. The CBD vacancy rate will likely increase to 24.3% at end-2023. Headline rents are expected to be stable while landlords offer incentives to retain occupancy rates.

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