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Office market shaken by economic crisis   2009-03-03 - TN, TBKTSG

 
 
Two bicycle riders pass a building advertising offices for lease at the corner of Nguyen Van Thu and Hai Ba Trung streets in Ho Chi Minh City’s District 1 Sunday  
Ho Chi Minh City office demand is sinking as the economic slump has forced many businesses to downsize or shelve expansion plans.

Some businesses now prefer to save money by renting space from individual home owners rather than at office buildings.

Le Cong Dinh, a managing partner at DC Law Firm, said the group had leased a house rather than renewing a rental contract at the high-end Sun Wah Tower last year.

“The new space is twice as large but eight times cheaper,” Dinh said.

Though renting at Sun Wah had its perks, his company could not afford to pay the US$75 a square meter a month.

Exodus

The marketing director of a popular office building in downtown HCMC who wished to go unnamed said many tenants were leaving his building.

He said up to 30 percent of offices at high-end buildings were now unoccupied while the rate is 40-70 percent at lower-grade buildings.

Many customers have cancelled advance bookings at newly completed office buildings, he said.

Billboards offering offices for lease line HCMC’s biggest commercial streets.

Ups and downs

Office rents are around $60 per square meter on average at high-end buildings while prices at second-tier buildings are usually around $25-35. Grade C level buildings are renting for some $14-22 per square meter.

Last year, the average monthly rent in top-tier buildings, including Sun Wah and the Metropolitan, soared to more than $80 per square meter.

Despite falling office rents since then, Dinh from DC Law said businesses that have already moved into individual home owners’ spaces may not return to office buildings.

He said home owners could offer longer-term contracts and businesses had to spend money decorating the new space for use.

He also said that office rents are still too high despite the drop.

Le Ba Thong, general director of interior decorator TTT Corporation, which holds more than 70 percent of the office decoration market share in HCMC, said his firm’s business had not been affected much during the 1997 Asian financial crisis as customers who transferred from high-end offices to lower-grade offices still needed interior decoration services.

But now, the whole office leasing market is quiet, he said.

With higher supply and lower demand, property firm CB Richard Ellis (CBRE) Vietnam expects office rents to fall to $30 per square meter for high-end buildings, $20 for second tier buildings and $10 for Grade C facilities.

Supply and demand

A recent report from the property firm said the supply of office space in HCMC would increase 122 percent to 2 million square meters in 2011.

CBRE Vietnam Head of Asset Services Fiona Saunders told Thanh Nien Daily the apartment leasing situation in Vietnam was a matter of serious concern.

As a fallout of the global economic downturn, the limited tenant pool, reduction of company headcounts and a restriction in business expansion were major difficulties facing the city’s office building leasing market, she said.

Such difficulties would force new landlords to aggressively cut rates by as much as 30 percent to compete with those who already hold market shares, she added.

At a seminar in HCMC last month, Saunders told the media that the continuing global economic crisis meant that landlords had to stay more informed and be flexible in order to take advantage of any and all opportunities that might arise.



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