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Office accomodation Print E-mail
Written by Administrator   
Saturday, 11 March 2006
Article Index
Office accomodation
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Office Accommodation in Vietnam

Unit Vietnam's economic liberalization (also referred to as "Doi Moi / Open Door" policy) that began with the 6th Party Congress of 1985, there was no foreign direct investment (FDI) in real estate, and so the country had no “International Standard? office properties until the latter half of the 1990’s. The “First Wave? of FDI brought with it a number of speculative investors, who pinned their hopes on Vietnam’s rapid integration into the world economy. These hopes didn’t materialize and the wider regional ‘Asian Economic Crisis’ put an end to any existing investors’ hopes of making a ‘quick-buck’. It also put a halt to all of the projects that were still on the drawing board (even if already licenced) and many that were already underway. Ten years later, the skyline of HCMC still shows several concrete skeletons (such as the Holiday Inn), though most of these are now either being completed (such as PetroVietnam Tower) or have recently been completed (such as the Hyatt). Many of the projects licenced in the mid to late 1990’s never made it the construction stage and are now ‘long-delayed’ and have been leased out to sub-investors, typically for 10 terms as coffee shop / restaurants, or have / are being re-licenced to new foreign investors, such as the USD$525 million ‘Black Hole of Saigon’; Saigon ‘Space-Ship’; or Asiana Plaza. A couple of the better sites have been acquired by new investors and are now under construction, such as Avalon and Times Square.

As a direct consequent of the total absence of FDI in real estate for about 10 years from @1995, Vietnam’s cities are now facing a chronic shortage of all types of space, including office accommodation. However, with a few (relatively) very large projects now underway the future looks better for tenants,,.. BUT these buildings will take 2-3 years to construct, and so space shortages and inevitably rental increases look set to continue in the short term. Thus, office rentals have roughly doubled over the past 5 years and are now roughly on par with Singapore.

In Vietnam there are a wide variety of office standards, from “Institutional Standard? Grade A buildings to potential ‘death-traps’ with, for example, no adequate fire escapes, and so which in many countries would be closed and immediately redeveloped. It seems inappropriate to us to classify this group of buildings as Grade C since they cannot be regarded as being “International Standard? and so we catagories office properties from Grades A-E with only genuinely “institutional standard? properties being classified as Grade A properties.

Classifying office properties by grades must, by definition, be a subjective exercise. Some investors would argue that mixed-use buildings are expensive to manage and a bit of a ‘Jack-of-all-trades and master of none’. However, since most of Vietnam’s larger office buildings incorporate either residential and / or retail elements, this would seem to be being unnecessarily pedantic, especially in the context of Vietnam where considerations such as location, management and on-going maintenance programmes need to be given additional weighting to compensate for any such perceived design deficiencies. Having taken all of relevant factors into account, one is than able to make some sort of sensible assessment of the quality of one building against others in the locality. We have concluded that ‘international standard’ buildings can best be described as being those that have been designed and constructed in accordance with widely recognized international standards (Grades A-C) with the others as Grades D-E. This does not necessarily infer that all of the many such locally designed and built buildings are unsuitable for occupation by most foreign invested enterprises (FIE), but that they are usually unsuitable for multi-national corporations (MNC).

Hanoi

Hanoi is a relatively small province (921sq.km compared with HCMC’s 2,095 sq.km) with 12 Districts : Soc Son, Dong Anh & Gia Lam - northeast of the Red River (663 sq.km) - and Tu Liem, Thanh Tri, Tay Ho, Cau Giay, Thanh Xuan, Hai Ba Trung, Dong Da, Hoan Kiem and Ba Dinh – of which the last 7 represent the central and ancient core (84 sq.km)

 

General Overview

This central part of Hanoi is densely populated with about 1.5 million people. There are very few buildings above 4-6 floors and almost all were built since 1975 and most in dreadful condition. Infact, according to a recent survey 5% must be destroyed as soon as possi­ble and 62% in need of upgrades. Because of the small nature of the building stock, the small roads, and the flat geography, there are very few genuine landmark buildings except for the few with lakeside locations.

The imminent construction of the country’s tallest building on Lieu Giai Street in Ba Dinh near the Daewoo Hotel will signal a change as the capital city starts to develop some buildings worthy of its capital status. The USD$114.6 million 65 floor Hanoi City Tower is being developed by Coralis Vietnam (a venture between the Luxembourg registered Coralis SA & LOHR Industrie) which has, exceptionally, received a 49 year 100% FIE (foreign invested enterprise) licence. It is capitalised at USD$114.6 million with USD$53 million in legal capital and will provide 200,000 sqm of office accommodation, apartments & retail space. Extraordinarily, in itself this one building has the potential to triple to amount of Grade A office space in Hanoi, since the cumulative total stock in 2005 was only about 80,000 sqm. This risibly low figure is both an indictment of the foreign investment laws (regarding real estate) and of the ability of the Hanoi People’s Committee ability to attract investment. However, the new Land Law and the granting of a 100% FIE licence to Coralis are hopefully signals of a new beginning; of a new “Second Wave? of foreign investment in real estate.

The capital city's population has increased remark­ably in recent decades. The city was home to more than 3 million in 2004, with an average density of 17,868 people per kilometre. How­ever, this rate is much higher in the central districts. The most densely populated is Hoan Kiem District and especially Hang Bo Commune. The high density popula­tion results from the fact that each person in these areas have an average living space of only 2 square metres. This has hit the city's infrastructure system hard, especially in the Old Quar­ter, where many generations still live in the same house together. Because almost all of the narrow, twisty roads are lined with tiny shop-houses with ground floor retail accommodation, development sites for ‘international standard’ buildings ie @1,000 sqm, are almost impossible to assemble. The only large sites are typically owned by current or former (post equitisation) SOEs (State Owned Enterprises), the Communist Party, the People’s Committee, or the military, none of whom have any desire what-so-ever on selling nor much more motivation to do so. However, as and when the new Bankruptcy Law is enforced some of these sites shall inevitably become available, albeit probably by way of limited 30-50 year Joint Ventures, which need to be compared to the situation in China where Joint Ventures can be for 70 years and where foreigners can own 49% of any domestic company. By contrast, in Vietnam – even after the Enterprise Law – foreigners are able to own zero percent of local real estate / development companies, since it is regarded as a ‘sensitive’ sector, which presumably infers that no foreign investment is a good thing?

International Standard Office Accommodation

Until 2004 the cumulative total of international standard office accommodation stood at only about 50,000 sqm virtually all of which were developed by foreign invested joint venture buildings between 1994 & 1997 - which means that they were / are 1st Generation property investments. Because virtually no new accommodation was added until 2004 vacancy rates have always been low and there has / is / will always be a large core of affluent MNC (multi-national companies) who consider it appropriate to have their country manager and / or head office in the capital city, close to the Ministries, who demand and can afford international standard office accommodation.

In 2004 the USD$32.9 million Vincom City Towers (by a group of Viet Kieu from the Ukraine who operate as Vietnam General Commercial JS Co - Vincom) & USD$18 million Ocean Park (by the Ha Noi Maritime Holding Co - Marina Hanoi) added about 65,000 sqm of international standard accommodation, perhaps unsurprisingly, all of which leased within about a 6 months, reflecting the degree of pent-up demand for ‘quality’ office space at (the then) ‘relatively’ affordable prices of between USD$17-22 / sqm depending upon floor level, size, term, etc.

Occupancies have been over 90% at all of the larger established, foreign invested properties since about 2000, which in many respects should be regarded as full occupancy, given the short-term nature of most FIEs business plans in Vietnam eg Allianz, and the short term nature of leases in Vietnam. Rental rates are therefore high, and given the absence of significant additions to the total stock for a couple more years, look set to rise even more as demand for city centre accommodation will continue to far outstrip the supply – especially given WTO accession and the continuing impact of Vietnam’s “ASEAN Free Trade Area? (AFTA) implementation, with effect from 1st January 2006, and the increasing demand from domestic enterprises to up-grade to international standard accommodation.

However, there are an ever increasing supply of Grade B and the smaller Grade C-D buildings being built that are suitable for those companies willing to be based @15-30 minutes drive from the central ‘ancient’ core of Hanoi, such as Hoa Binh Towers on Hoang Quoc Viet in Cau Giay or Bitexco’s Manor complex near the new national assembly & national sports stadium in Tu Liem District.

Infact, 2006-2007 will see over 1250,000 sqm of such space built which may / should have a dampening effect on rentals for Grade B-C-D accommodation including,

  • In 2006 space at : Pacific Place @18,500 sqm at 83b Ly Thuong Kiet in Hoan Kiem District; Hoa Binh Towers @1,500 sqm on Hoang Quoc Viet in Cau Giay District; ICC Building @4,500 sqm on Nguyen Chi Thanh; VIT Tower @15,000 sqm at 519 Kim Ma in Ba Dinh District; Opera Business Centre @4,000 sqm on Ly Thai To; Dragon Building @5,500 sqm on Tran Duy Hung; Devyt Building @3,000 sqm at 5 Dao Duy Anh; North Asia Building at 9 Dao Duy Anh; Toserco (Tourist Service Company) on Kim Ma in Ba Dinh; Hacinco Building & DMC Tan Long Building;
  • In 2007 space at : the USD$2.2 million Artexport Building No.2 @3,500 sqm at Pham Su Manh; Viet Tower (A & B) @42,000 sqm at 1 Thai Ha in Dong Da District;
  • In 2008 space at : the USD$43.67 million BIDV SMART Tower @33,000 sqm at 194 Tran Quang Khai by the BIDV bank & Sinapore’s Bloomhill Holdings Pte Ltd; Bitexco’s USD$32 million the Manor Garden Officetel in Tu Liem; and Cau Giay Plaza at 260 Cau Giay; and in 2009 the Hanoi City Complex @50,000 sqm; and the Vinaconex Building at Trung Hoa in the Nhan Chinh New Urban Area.
  • Thereafter, one can expect considerable quantities of stock to be constructed at the USD$1.1 billion 148 hectare South Thang Long Urban project which will cover four wards in Tay Ho & Tu Liem Districts; the USD$1 billion residen­tial complex on a 400 hectare area in Dong Anh District around Vinh Ngoc & Tam Xa; the USD$236 million Northbridge Residential Project in Dong Anh; and at the USD$240 million Red River City.

However, in the short term, another interesting recent development has been the selling of long-term leases of office and apartment accommodation, under the pre-text that the ‘owners’ can then sub-lease,....which is debatable!

Pacific Place was the first foreign invested property to introduce such a scheme in mid-2004, with the intension of selling over 17,000 sqm of office space for 37 year terms at only USD$4.5 / sqm and apartments for between USD$1,800-USD$2,200 / sqm for 15, 25 or 42 years in order to quickly recover their investment. However, by the end of 2005, the owners realised that “there was no need to sell the lease rights any more as the company would be able to recover investment capital within 4 years? by leasing space in the convential manner on the usual 2-3 year leases at @USD$30 / sqm per month plus management fees. Cheaper Grade C-D buildings are currently available for @USD$20+ / sqm per month, typically plus 10% VAT and service / manangement charge.



Last Updated ( Saturday, 14 October 2006 )
 
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