The global office market faces many difficulties
The office market in many countries is facing difficulties, facing a wave of land clearing or downsizing, causing an increase in the number of vacant offices.
It can be seen that, based on statistics of security service provider Kastle, the average occupancy rate of offices has not reached half of the level achieved in March 2020. According to JLL, this ratio increased by about 20.2% in Q1/2023 and reached a higher level of 19.6% compared to the last three months of last year.
Many offices in areas from Dallas, Minneapolis to New York and Los Angeles are mostly vacant due to the influence of the work-from-home trend. In addition, there are difficulties due to the owners starting to default because of not completing the payments of the loans, or unsuccessfully negotiating with the lenders. According to predictions, the price of office real estate in the US may decrease by 30% in 2023.
The current vacancy rate of US offices is a warning about the downturn of the real estate market in this country. Unstable factors affecting the market can be mentioned such as high interest rates, decline in real estate values in office buildings and a negative chain reaction to banks. Not only in office real estate, this market also affects types of apartment buildings, warehouses as well as commercial areas and most recently this reduction rate reached 15%.
In Hong Kong, it can be seen that this is the second country in the world in terms of office rental costs with more than 242 USD/m2/month (ie 5.8 million VND/m2/month). However, based on data from real estate management company Colliers International Group, in April, the vacancy rate of Grade A buildings in Hong Kong reached nearly 15%, tripled compared to 2019.
Colliers International Group said that the Grade A rental market and the country’s development were affected by the escalating tension between the US and China, along with the scaling back of plans to expand US banks. Specifically, with Morgan Stanley after cutting 50 employees in 2022, the bank is planning to cut an additional 7% of staff at all branches in the Asia-Pacific region. Similarly, Deutsche Bank, Standard Chartered and BNP Paribas… have abandoned their Hong Kong offices and implemented many measures to cut operating costs.
According to MSCI Real Assets, in the first quarter of this year, office transactions in Hong Kong fell by 50% compared to the 5-year average. In particular, the cost of renting high-end office space in March this year decreased by 26% compared to the record high in 2018.
The office leasing market in Vietnam is currently in a challenging period. Although still in the period of steady growth at the rate of 12% per year, up to now, statistics in the first quarter of 2023 the number of projects is 379 projects in operation with a total area of 2.6 million m2. Supply in the first quarter of this year is also increasing when Grade A reaches a total area of more than 300,000 m2, but in contrast to a decrease in demand, the office vacancy rate in the CBD increased by 5.6%, based on JLL Vietnam report.
Due to economic difficulties, it has created great pressure on the office rental market after the first epidemic, the new leased area is still limited. Due to the limited space, the area being returned to the ground and narrowed increased sharply, the vacant area of Grade A increased by 3,500 m2, while the new leased area of Grade B office increased by just over 2,200 m2.
Many experts said that the office rental market is facing the risk of an oversupply crisis because of high supply but a shortage of tenants. Explaining this issue, Savill said that in the first quarter, more businesses closed than newly established and re-operated businesses with 60,241 dissolved enterprises and only 59,946 newly registered businesses.
In the context of the current economy, tenants are now quite cautious, keeping the leased premises or just wanting to reduce the leased area to save operating costs. Grade A and B occupancy rates decreased slightly QoQ, at only 0.7% and 2.7% respectively. Many office leasing units in the central area from the beginning of the year until now have had to close and return the leased premises ahead of time. Many office lease transactions in the negotiation process have also been delayed for the lessee to cut costs or change business plans.
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