With lack of supply and increasing rents in the existing CBD, and the completion of a major infrastructure within Thu Thiem, JLL anticipates large head office requirements will consider Thu Thiem as a viable alternative to the existing CBD.

Thu Thiem set to relieve Ho Chi Minh City’s infrastructural challenges

Since 2015, Ho Chi Minh City (HCMC) office performance has exceeded expected demand with impressive net absorption across all segments of commercial office buildings. 2017 witnessed 4 new large scale Grade A and Grade B buildings entering the market of which three recorded an occupancy rate of over 70% upon opening. 

At a glance:

• Increasing CBD rents are making Thu Thiem as a viable alternative for relocating head offices
• There is high demand for both Grade A & Grade B office submarkets
• Landlords are confidently raising rents almost to the record highs of 2006 to 2017
• E-commerce, Co-working, Logistics, Sourcing and Manufacturing are some of the segments creating this demand

According to a JLL report, there is an extremely high demand in the market for both mature and new buildings in both Grade A & Grade B office submarkets. 

Most Grade A office buildings achieved greater than 94% occupancy. Demand has seen higher quality new buildings being completed with an average rental rate at US$38.9 /sqm/month.

Grade B office sub-market occupancy rates are higher than 94%. Rising rents recorded US$10 USD /sqm/month higher than those in more mature buildings (built pre – 2010) already on the market, with the average rate at US$22.3 /sqm/month. 

The short term limited Supply and subsequent rising rental rates we believe will continue to drive further investment into HCMC and Vietnam’s office market segment from existing developers and new market entrants – the challenge now is, where to invest?

“Our developer clients are not concerned about whether they will fill up their buildings, the biggest concern is ‘How can I find my next project? And how soon can I complete it as quickly as possible?’’ says Trang Bui, Head of Markets in Vietnam of JLL. The HCMC office market is looking like a landlord market with landlords confidently raising rental rates close to the record high rental levels experienced in 2006 to 2017.

“Average tenant sizes have now doubled as companies continue to expand and new entrants enter the market. Just from its own brokered transactions, JLL has recorded the average tenant size in Ho Chi Minh City to double versus the same period last year up to 500 sqm – 600 sqm,” said Trang Bui.

Emerging segments such as ‘E – Commerce’ are propelling office demand to new heights not experienced in Vietnam before as are Co-working, Logistics, Sourcing and Manufacturing related enterprises. JLL expects this trend to continue right through 2018 to 2019.

Many developers are looking beyond the traditional CBD and toward the future, including Thu Thiem. According to JLL report, the master plan of the Thu Thiem NUA is aimed to alleviate the pressures being faced in the existing CBD. The 657-hectare site located on the banks of Saigon River’s opposite side, facing the existing CBD, will comprise 176 land parcels with approximately 3.2 million sqm (GFA) residential space and 3.4 million sqm (GFA) of commercial space, the total site will eventually accommodate a residential population of 145,000 and employee population of 217,000. Thu Thiem will be home to a number of major head offices and will become a vibrant destination combining residences, offices, shopping centres, hotels and serviced apartments. 

JLL expects initial hesitation will be overcome by benefits such as cost competitive rental rates, low density open areas, infrastructure and easier connectivity to the growth corridor of HCMC. With 35% of main infrastructure already complete, perhaps a new ‘Thu Thiem skyline’ could be the solution to the challenges.

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