Vietnam's Keangnam Hanoi Landmark Tower, the tallest in Southeast Asia after Petronas Towers, is boosting prime office space in the capital Hanoi by half and threatening to drive rents to a five-year low.
The property, which includes a hotel, luxury apartments and mall, is adding 100,000 square meters (1.1 million square feet) of office space, said Choi Yong-Ho, marketing manager of Keangnam Vina, the unit of South Korea's Keangnam Enterprises Ltd. that built the 346 meters (1,135 feet) tower.
Vietnam's property market has slowed down as the government tightened credit to help curb Asia's fastest inflation. The additional space from the tower may drive Hanoi's office rents down as much as 8 percent in the first half to their lowest since the fourth quarter of 2006, according to Jones Lang LaSalle Inc.
"The tower flooded the market with a lot of supply," Fraser Wilson, Ho Chi Minh City-based director of Vietnam Property Fund at Dragon Capital, the biggest private investor in Vietnam's stock market, said in an interview on Feb. 24. "That can only have a negative impact on the rents."
Keangnam, located in the new western suburb My Dinh, is 30-minute car ride from downtown Hanoi. Rents at the tower average $25 per square meter, Choi said, compared with $40 to $45 in the city center. The figures exclude taxes and service charges.
The new building has leased out 30 percent of its office space with tenants including LG Electronics Inc. and Standard Chartered Plc, Choi said. That's less than he expected, he said, forecasting the building to be 70 percent filled by the end of the year and fully leased by 2013.
Keangnam is drawing tenants because prices in the central business district are "a little higher," Choi said, adding that the size of the building allows expansion.
The tower has the same height as the Center in Hong Kong and is higher than Shanghai's Shimao International Plaza and John Hancock Center in Chicago, according to Council on Tall Buildings and Urban Habitat's data.
"With large vacant space coming on stream amidst an economic slowdown, it affects the overall performance of the market, both in terms of rental performance and space absorption rates, which may paint an unpromising picture of the entire market," Thai Quang Trung, manager of research and consulting at Jones Lang LaSalle Vietnam Co., said in an e-mail.
The vacancy rate for grade A, or the most expensive, office space in Hanoi rose to 34.5 percent at the end of 2011 from 9.8 percent in the third quarter, the Chicago-based property brokerage said.
Rents in the capital decreased 11 percent to an average $28.90 per square meter in the fourth quarter with Keangnam's completion, and may decline further in the first half with supply from new buildings, Trung said. Choi at Keangnam estimates rents in Hanoi's city center to drop 15 percent with his tower.
The outlook for real estate also may be hurt by the nation's economic policies. The central bank will continue to restrict loans for the property sector, according to a Feb. 13 statement on its website.
Keangnam is counting on growth in My Dinh, where government offices including the foreign ministry are moving to and the National Convention Center is located, said Choi.
"Other buildings are coming on-stream in the My Dinh area soon so it will become a more and more established location overtime, with more facilities and amenities," Dragon Capital's Wilson said. "For most international companies, occupational costs are very important when picking their location."