Hanoi Office Market to Face Over Supply in 2011, Knight Frank Forecast

VNRE - The office market in Hanoi last year continued its volatility as it keeps managing an oversupply situation starting in 2009. The market has welcomed several new larger office buildings. This trend will continue into 2011 with the available office space growing by 18% with the opening of Keangnam Hanoi Landmark Towers and EVN Towers.

The forecast, newly released by the Consultancy & Research Department of Knight Frank Vietnam, noted that Hanoi now has a greater opportunity to enjoy a higher quality construction and services with many of these new office buildings as a positive result of the city’s over supply.

With several major developments in the west recently completed or approaching completion, along with large and mid-size developments in the central districts, Hanoi is again facing a major increase in supply without the corresponding demand to fill it. Various submarkets across Hanoi have some distinct features that will affect their rental levels. First, the central business district (CBD) of Hanoi will see only one major development come to fruition in the coming year. This property, EVN Towers, along with other major completed structures such as BIDV Tower and CAPITAL Tower will continue to put downward pressure on the rental rates in the CBD for the next six to eighteen months. Despite falling rental rates demand for office in the CBD has been and will likely continue to be stronger than other districts.

With the completion of some major projects to the west, such as: Keangnam Hanoi Landmark Towers, Crown Plaza Complex, Handico Tower in 2011, there will be vast supply coming to the market. The large oversupply which will exist in the western districts of Hanoi will have a more drastic effect on the rates and for a longer period of time. The 150,000 – 200,000sm of available space which will come to market in 2011 will continue to put pressure on the rental rates in the central and western submarkets for no less than twenty four months.

Historically over the past several years Hanoi office market grew steadily with rates increasing as the market’s appetite for newer and higher quality office space finally exceeded supply. Rates increased more than twofold on average from approximately $20 per square metre all the way up to $60 per square metre at the market peak in 2007/2008 for Hanoi higher quality office towers. Developers were quick to respond to such high office rental rates and they all rushed to participate in the market, resulting in a vastly over supplied office market that will only grow in 2011, estimated Knight Frank.

As with similar market conditions throughout the world, Hanoi will experience an increase in historical absorption rates as tenants take advantage of the lower rents and elect to consume larger space for future growth. In other words, historical absorption would project five plus years for consumption of current office supply. We anticipate adjusted absorption rates more in a three to five year time frame.

Average rental rates in all districts will likely not rise for at least eighteen months with the western districts lagging behind the CBD.

Reported by Nam Pham | VCCI News