The competition in the high-end office segment in western Hanoi will become stiffer over the next two years. The change will be sparked by Keangnam Hanoi Landmark Tower and Charmvit’s Grand Plaza coming online. 

Peter Dinning, general director of Colliers International Vietnam, said that by the end of 2011, the total supply of office space in Hanoi would reach 1.2 million square metres.

Of this, 94,000sqm of Keangnam’s project and another 54,000sqm at Charmvit will be coming online. These two projects will together occupy approximately 12.3 per cent of Hanoi’s total office supply.

“During 2010 and 2011, we anticipate fierce competition in the Hanoi office market, as landlords will compete aggressively to fill their buildings in an increasingly tenant-friendly market,” Dinning said.

Colliers International Vietnam last week was appointed as the exclusive marketing and leasing agent for the office space at the Keangnam Hanoi Landmark Tower, the highest building in the country so far.

Dinning said that the high supply pipeline of Grade A and B office buildings in Hanoi, in particular in the western districts over the next two years, would undoubtedly cause greater competition and may force rents down further in the short term.

This year the Hanoi’s Grade A office market had already experienced drops in rentals of 4 per cent, quarter on quarter. The creation of a dual market in Hoan Kiem and the western districts and the increasing rivalry between landlords are likely to put further downward pressure on rentals.

“This could either affect the overall headline rentals or see the net effective rents over a three to five-year lease terms drop with the inclusion of greater rent-free periods and incentives,” he added.
In Hoan Kiem district, new projects such as the BIDV Tower and Capital Tower are already competing for tenants.

“This has hit the lease renewal market, with landlords offering existing tenants new leases six to 12 months prior to expiry,” Dinning said. “If future tenant demand remains sluggish and the absorption of new Grade A and B office space is slow, some investors and developers may begin to delay and postpone their developments and review their planning and feasibility studies of new projects,” he added.

Dinning said that landlords of poor quality buildings and locations were likely to suffer the most from lower rents and occupancy levels. “It will become increasingly important for landlords of new developments to secure high profile anchor tenants early on in the leasing campaign to attract tenants to new buildings and to boost occupancy rates,” he said.

Colliers International expected to see a continued shift towards the new central business district (CBD), which was fast developing in the western districts surrounding Pham Hung road in Cau Giay, Tu Liem and My Dinh districts.

“Whilst these new urban areas continue to gain momentum, it remains to be seen how many large national and international companies will be prepared to move out of the CBD during 2010 and 2011 despite the large floor plates and competitive rentals,” Dinning said. 

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