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Multinationals resist rising office rents   2008-05-30 - ThanhNienNews

Office rents in Vietnam’s Grade A buildings have skyrocketed but one real estate firm predicts demand for these prime properties will slow.

Insurance company Manulife relocated from Ho Chi Minh City’s District 1 to District 7  



Soaring inflation, a declining stock market and massive hikes in office rents are forcing multinational companies to reassess the size of their local workforce, CB Richard Ellis Vietnam (CBRE) said Thursday.

Some companies are splitting their operations into two in order to keep staff numbers in their expensive offices down, CBRE Vietnam’s Managing Director Marc Townsend said at a press briefing in HCMC.

Townsend said office rents in Grade A buildings in Hanoi had jumped nearly 50 percent over the past year, from about US$35 a square meter at the start of 2007 to $51 a square meter in May.

In HCMC, office rents in Grade A buildings had doubled over the same period, from $35 a square meter in the first quarter of last year to $70 now.

Townsend said the rents in these prime buildings could increase further.

“Tenants of these buildings have no choice [but to pay the higher rents], with new supply not hitting the market until 2009,” he said.

Townsend said multinationals were reacting to the higher costs by revising their growth forecasts.

“While they are still forecasting growth, they are not as bullish as they were at the start of the year,” he said.

“This is causing them to review and adjust their projected head counts, which then impacts upon their future space needs.”

Some companies were allowing their “front office” to remain in the expensive city center location and moving “back office functions” to cheaper buildings, sometimes in outer suburbs, he said.

Meanwhile, many Vietnamese companies simply could not justify paying the high inner city rents.

In decentralized locations, such as HCMC’s Saigon South new urban area and Tan Binh, Binh Thanh and Phu Nhuan districts, rents of Grade A buildings were up to 40 percent cheaper than in the center of town.

For lower classes of office buildings, the situation was markedly different, Townsend said, with signs that demand for Grade B and C buildings was softening.

Grade B buildings in HCMC had only risen to $45 a square meter from about $26 in late 2006.

Rents for Grade C buildings were now about $39 a square meter, up from $22 in late 2006.

Townsend advised office building tenants to keep leases short and flexible and negotiate caps on service charges and future rent increases.

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