Office rents slide as supply climbs

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Prime office spaces struggle to attract tenants in HCMC

Visitors look at models of residential and office towers at a real estate exhibition in Ho Chi Minh City. A surplus of office spaces has pushed down rental rates.

As increasing supply applies downward pressure on rentals, the office space segment has become a buyer's market, analysts say.

Compared to the 2007-2008 prime period, landlords are now much more patient and willing to please their tenants, they add.

With competition in the market getting tougher, new office buildings are trying to offer the best deals they can to attract customers and encourage them to move out of their existing offices. Some developers are offering several perks to lure tenants, including parking space and electricity bill subsidies.

UK real estate service provider Savills said in a quarterly report that office spaces in the city expanded 7 percent in the first three months of 2011, reaching 1.1 million square meters.

The increase has forced most building owners to reduce rental rates to retain current tenants and fill vacant spaces, causing the average rent to fall 3 percent to US$29 per square meter, the company said.

London-based DTZ Research said in a report last week that the vacancy rate in HCMC in the first quarter was 20.2 percent. That compares to 10.5 percent in Bangkok and just 3.3 percent in Singapore.

Occupancy for Grade A offices in particular was even lower, at approximately 63 percent, due to the large amount of space available at the new Bitexco Financial Tower and Vincom Center in the city downtown.

These new buildings, with a combined 110,000 square meters on offer, are still trying to attract tenants. According to a report in last week's Thoi Bao Kinh Te Saigon magazine, the two buildings, despite their prime locations, have only been able to fill up 30-40 percent of their spaces.

Analysts at DTZ forecast that around 270,000 square meters of office space will come into the market in the remaining months of 2011.

"With more office stock expected this year, we expect further softening of prime rents in 2011," they said. "The sector is expected to remain challenging for the rest of the year for landlords across all grades of office property."

Savills said from 2012 onward the market will have even more office space and rents will continue to fall.

But the company noted that many local banks are opening more and more branches in office buildings and they can help drive up demand.

Nigel Smith, executive director of office services in Asia for CB Richard Ellis, said there has been a shift in the way developers, occupiers and investors approach office buildings. Prime location is no longer the most important factor.

In order to attract tenants, developers need to pay attention to other aspects including the environment, sustainability and design, he said.

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