HCMCity (VNS/VNA) – Ho Chi Minh City’s office market has started tofeel the effects of the COVID-19 pandemic, with grade A buildings impacted more thangrade B, experts have said.

CBREsaid in its latest report, “The prolongation of COVID-19 haschallenged the recovery of economies in the Asia-Pacificregion as well as Vietnam.

“Though theHCM City office market did not record significantimpacts from COVID-19 in the first quarter of this year,it started to witness stronger reactions fromtenants in the second quarter after their revenuesplunged. With many going through a period of economic uncertainty,some were forced to return all or part of their office space.”

Accordingto CBRE, while there was no new supply in the HCM City office marketin the second quarter, new office area in 2019 and the firstquarter of this year has not been fully absorbed by the market.

Thiswas because many tenants have been planning to eithercontinue in their current buildings or relocate tobuildings with lower cost at the edge ofthe CBD or suburban areas. 

GradeB was steady, especially buildings with rents of less than 30 USD persquare metre.

TheCOVID-19 outbreak has changed the leasing tendency of occupiers,particularly after the social isolation period in March and April. 

Companiesopted for work-from-home to sustain operations and acknowledged thatthe productivity of employees was not affected when they workedout of non-office spaces. 

So relocatingoffices to CBD borders is not as difficult as before. Somecompanies have also adopted a long-term work-from-homestrategy of at least one day per week; others haverelocated to buildings with cheaper rents.

JLL,concurring with the view, said a number of buildings saw negative netabsorption in the second quarter as tenants facing financialdifficulties returned spaces. 

Thishappened for the first time in a decade, with the absorption being minus3,619sq.m in the second quarter. This was mainly due to small and medium-sizedenterprises, who were major tenants in the grade B market, scaling down andterminating contracts prematurely as a result of the pandemic.

GradeA, though more resilient and backed up by deep-pocketed companies, was alsounder pressure. This was proven by the low demand from expansion and newset-ups during the outbreak.

JLLpredicted that this year the market would add more than 100,000sq.m of grade Boffice space, mainly outside the CBD, to take the total space in grades A and Bto 1.5 million square metres.

Amidthe global economic uncertainty due to the impacts of Covid-19, office tenantswill take a hard hit, probably those in grades B and C first and then followedby those in Grade A if the virus is not soon contained globally.

Therefore,depending on the pandemic situation, buildings with increasing vacancies,especially in the lower grades, will likely reconsider their rents and leasingstrategies.

CBREsaid the construction of new office buildings in HCM City continued, and morethan 70,000sq.m were expected to be completed by the end of thisyear. 

Mostof the addition would be concentrated in the east (Binh ThanhDistrict) and south (District 7). 

Thelandlords of many/most/all of these buildings had already decreased askingrents by1-3 USD per square metre compared to the last quarter of 2019.

CBREsaid with countries in the neighbourhood struggling with the pandemic,demand for office space in HCM City from foreign companies had beenimpacted.

Rateswere expected to shrink by 8 -10 percent year-on-year and the vacancyrate would increase by 7-9 percentage points by the end of 2020 due to newsupply and the influence of COVID-19, it said.

PhamNgoc Thien Thanh, its associate director, said: “The changes in occupierleasing preferences are becoming more vivid. We expect that themarket will see more relocation andcontraction transactions this year. So, it requireslandlords to have appropriate solutions for the short and longterms to catch up with occupier leasing preferences. 

“Moreover,flexible workspace operators should be more prudent with their expansion plansat the moment, and should focus more on improving performance at their currentcentres by providing incentive packages and diversifying target tenants.”/.