Minggu, 03/05/2009

Vietnam Faces Office Space Crisis

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Vietnam Faces Office Space Crisis

THE CURRENT CRISIS of office space in Vietnam is not due to supply shortages but because of the opposite reason. Oversupply has caused rent prices decline significantly. This condition is predicted to remain since available supply and incoming exceed the demand. New office space that will enter the market in 2009 reach 1.25 million sqm.

Data at a property company in Vietnam shows that in 2011 office space supply will rise 122 percent to 2 million sqm. In southern Vietnam, office space that totals 930,000 sqm is being built, it will be ready in 2012. Office space is now so abundant in Vietnam while businesses or investments in that field are slow, and it is hard to predict when that situation will get back to normal, considering the current global economic crisis.

This condition, triggered by the slowing economic situation, has forced companies to relocate their offices to smaller ones or cancel their expansion plans. In Ho Chi Minh City, office space rents fell by up to 50 percent. At the moment, although office space supply is not that much as that planned for 2011, building owners in Vietnam have entered a fierce competition with one another in reducing prices so as to win the market. Just imagine about their competition in 2011.

Global property firms like Cushman & Wakefield, Savills and CB Richard Ellis said that rent prices of the best quality office space have declined from US$70 per sqm to US$43 per sqm and even US$30 per sqm this year. Rent prices of second-class office space also have dropped from around US$45 per sqm to US$28- US$40 per sqm. Meanwhile, the rent prices of third-class office space have fallen from US$39 per sqm to US$14- US$25 per sqm.

According to Marc Townsend, managing director of CB Richard Ellis, demand for office space is very closely related to the number of workers and the financial stability of their company. At this time, companies are tightening their belts by reducing the number of their employees and their operational costs including the costs of their office space rents. The marketing director of a well-known office building in the city center of Ho Chi Minh City said many tenants had relocated their offices from that building.

At the moment, around 30 percent of luxury office space at the building is vacant. Meanwhile, between 40 percent and 70 percent of the building space that is still filled is the lower class one. Not only office buildings that face such problems. Newly built office buildings also have seen their contracts with tenants cancelled. Rent price war is not enough to face crisis in the office space market.

Amidst the current crisis, when office space rent prices have declined, investors have found new alternatives other than relocating to smaller or less quality offices. More and more companies prefer rent homes for their offices. This has been done by Le Cong Dinh, a managing partner at DC Law Firm. He preferred renting a house for his office to extending office space contracts at the luxury office building, Sun Wah Tower, last year. Although rent prices at Sun Wah Tower declined, Dinh said his company could not afford to pay US$75 per sqm per month. That was why he decided to rent a house for his office.

“The new space is twice as large but eight times cheaper,” said Dinh. He added that the house owner could offer long-term contracts, which helped his company save money and use it to provide decoration for the new office. Amidst the jitters of the office space crisis, there is another business related to office space, which is lightly affected by the decline in rent prices. It is the office space decoration business.

Le Ba Thong, general director of interior decorator of TTT Corporation, has decorated 70 percent of the offices at the Ho Chi Minh City bourse. Ba Tong said that his company had not been much affected by the Asian financial crisis in 1997. The crisis forced his customers to relocate to lower-class office buildings. But that development did not create any serious problem for Dinh because his customers needed decoration for their new office. But, he admitted that at this time he receives few orders from rented offices. In the current crisis, investors could think about forming office decoration firms rather than constructing many new office buildings. (NS)