Experts forecast that around 150,000 s.q.m of office area for rent will be put into operation this year. This is seen as a big figure compared to the market demand. A redundancy of offices for hire is being formed.
A bigger supply source Last year marked a standstill of the office-for-hire segment. Average rental of offices dropped by 20- 25 per cent in the country. Low demand and big supply have resulted in a pressure for discounts of the segment. In Hanoi, in 2009, up to 50,000 s.q.m of offices were not filled yet, including two newly-opened buildings of Capital Tower and BIDV Tower.
When the market becomes saturated, investors will be passive in charging rentals. The competition pressure gives customers rights. Therefore, finding customers and working a rental strategy remains a big question for investors whose projects are going to become operational and under operations but a large area of them still left empty. Up to 150,000 s.q.m put into use is a big figure in this context because a remarkable area of huge projects like Grand Plaza and CMC Tower is still waiting for tenants.
Richard Leech, Managing Director of CB Richard Ellis, said rental of offices in Hanoi will continue falling in the coming time. “Despite improvement since early this year against 2009, the abundant supply has caused a big pressure for investors who must wonder whether lower rental to fill up their buildings or maintain high prices by leaving part of their projects unoccupied, he added.
Richard Leech noted, during this time, the most intelligent of investors is reducing prices as this helps them ensure cash flow.
Sharing the same viewpoint with Leech, Nathan Cumberlidge, Technical Director of Colliers International in Hanoi, said investors are priortising a strategy to maintain their maximal hiring capacity instead of keeping the high prices. They will mull over raising rentals when customers extend the contracts in the context of economic slowdown.
A building considered the most effective is CEO Tower. Located on a site of 13,000 s.q.m on Pham Hung street, Hanoi, up to 95 per cent of the building has been leased after four-month operations. This is seen as an impressive figure for investors in this situation. Flexible price mechanism as well as hire time is major factors to lure customers. When the office-for-rent market stood at peak early 2008, investors and consulting firms planned to apply rentals at over US$30/s.q.m/month. However, they reduced the rentals to US$22-US$26/s.q.m/month, even offered lower prices for customers who hired big area for a long time. PetroVietnam Construction Joint Stock Corporation leased up to 5,256 s.q.m and Lac Viet Company hired 483 s.q.m at CEO Tower, meanwhile, many companies had to reduce the office hire to cope with the economic downturn.
CEO Tower has also applied the long-term lease strategy successfully. Part of the project has been leased for a long term during its lifespan at price of VND27 million/s.q.m. This is the first project in Hanoi making successes with this business model.
Secondary investors enter the market Currently, a number of secondary investors have joined the office-for-rent segment. They can buy several hundreds of s.q.m within 40 - 50 years and then lease them, which helps them to penetrate into the market quickly without developing projects. Selling a large area to secondary investors is attracting project investors’ attention as they can take a cash amount to ensure loans or continue investing in other projects.
IDJ Financial is very successful with the business model. The company’s investment manager said “Due to the economic slowdown, project investors have to sell offices to secondary ones to ease capital shortage. If the market recovers well, they will not do so”. Currently IDJ Financial has bought back two floors of Grand Plaza and reselling them at US$3,500/s.q.m. The tower investor Charmvit Group is offering for sales at a term of 50 years to mobilise capital for a hotel nearby.
Nathan Cumberlidge said investors who have financial capacity can select good projects to enter the market. The office-for-rent market will continue face risks with fall in rentals and increase in unoccupied area. But, a number of investors bet that the market will grow in the medium and long term, therefore, they are ready to buy offices at current prices. “Until revoking capital and working out an effective long-term lease strategy, investors can make profits from added value of realty within 5-10 years”, he highlighted.
Luong Tuan
Vietnamese
