“Reach 1 Million in the next 5 years”
By the end of 2015, Vietnam had around 550 thousand active enterprises. That figure is forecasted to reach 1 million in the next five years, half of which will be located in Hanoi and Ho Chi Minh City.
Such rise in number of businesses calls for a corresponding rise in amount of office space, especially when land prices in the 2 major cities are too expensive (up to $7,000/sqm in central districts) for modest-size enterprises to own an independent building.
Currently, Hanoi and Ho Chi Minh City’s total office space stands at 1.2 and 2.4 million sqm respectively. Each city can expect to add around 160,000 sqm to its supply source in 2017. While Ho Chi Minh City will still have the new stock concentrate in downtown area, Hanoi is likely to experience a movement towards west side of the city as its Central Business Districts is quickly running out of usable land.
On average, the office rent was higher in Ho Chi Minh City than in Hanoi. For Grade A (best quality) offices, the scores are $36/sqm/month vs. $28/sqm/month in favor of the southern metropolis. For Grade B (second best quality) offices, Ho Chi Minh City still prevail with $20/sqm/month against Hanoi’s $18/sqm/month.
Regarding the rental situation, there is not much difference between the 2 cities in terms of office occupancy rate, around 80% for either grade in either city. The vacant space is believed to be filled up really soon, and supply will struggle to catch up with the surging demand in just a couple of years.
About the customers, most tenants come from IT and financial services industries, though Ho Chi Minh City also has manufacturing as a quite large component. Japanese and Korean enterprises are the prevalent foreign tenants in Hanoi, while such of Ho Chi Minh City are US, Singapore, and Hong Kong.
The most desired office size is 100-300 sqm, preferred by 45% tenants in Hanoi and 39% tenants in Ho Chi Minh City. Large size offices (> 1,000 sqm) are more welcomed in the southern metropolis (16%) than in the capital (8%).
“Co-working space will be the solution?!”
Notably, co-working space is gaining great momentum in Vietnam. With its sharing-economy principles, this kind of working habitat is commonly associated with start-ups, who limited size and financial resources leave them no choice but to find the most cost-effective office solution possible.
Among various co-working space suppliers, ‘Toong’ in Hanoi and ‘Dreamplex’ in Ho Chi Minh City seems to be the most successful ones. Both obviously offer working space, and both also include add-ons like recreation and catering services in their proposed packages. There are individual packages (price range: around 100 – 150 USD/person/month) and group packages (price range: around 500 to 1300 USD/studio/month)
The success stories of Toong and Dreamplex strongly encourage similar ventures to join the stage, and can be considered as a valid indication that co-working space will prosper in times to come. President Obama might have felt the same when he visited Dreamplex on May 2016 – 6 months after Mr. Sundar Pichai, Google’s CEO, met up with Vietnamese young entrepreneurs at Toong.
In conclusion, demand for office in Vietnam can be expected to outpace its supply by a substantial margin, thus foreign office-for-lease companies will find a lot of opportunities to join the market. For those who really have a plan to do so, it is noteworthy that the competitive edge of this business is drifting from physical attributes like buildings’ location or space, towards intangible values like business model or administrative quality. In that regard, co-working space model is certainly a very appealing option for investment.