Office rents continue to tumble

“It’s been our view that Grade A office rents will reach US$30++ per sqm per month in 2009, principally due to the significant growth in supply during the year,” the world leading company in real estate services said in a statement last weekend.
The company unveiled the projection not long after another big property service provider CB Richard Ellis (CBRE) forecast a sharp decline in office rents this year when taking into account the happenings in Vietnam and elsewhere in the world. “With the global slowdown continuing to gather momentum, office rents are under additional pressure as occupiers focus on expense discipline and cost reduction as they look for ways to survive the economic turmoil,” Cushman & Wakefield said.

The company explained office rent took the largest fixed costs of most businesses, followed by staff and information technology. Currently, companies are also cutting back on office space as staff numbers dwindle, and they are also slashing their future growth forecasts.

“As tenants seek ways to lower costs, and at the same time increase efficiencies, landlords need to attract and retain quality tenants,” Cushman & Wakefield said. “Never has the relationship between tenant and landlord been more important.”

“Flight to quality – always the darkest before dawn” is what Cushman & Wakefield commented on the future of office rents in this economic hub of Vietnam.

The company did not clarify the future supply of offices for lease in HCMC, but CBRE earlier this year said the office space available in the city would rise to over 1.2 million square meters by the fourth quarter 2009, and double within three years.

Cushman & Wakefield said the grade A office buildings to be up and running in HCMC included Kumho Asiana Plaza with available space of at least 28,000 square meters, Center Point with around 30,000 square meters, HCMC Building with 10,500 square meters, A&B Tower with 25,500 square meters and the Financial Tower with 119,000 square meters.

With the abundant future supply of all types, Cushman & Wakefield projected the monthly grade B office rent to go down to US$20-25 per sqm and the grade C could reach US$10-15.

The company’s projection is more or less the same to the view of CBRE managing director Marc Townsend, who predicted the office rents could tumble to the 2002 levels of US$30 per sqm for grade A, US$20 per sqm for grade B and US$10 per sqm for grade C.

The monthly rates fall from around US$48-60 per sqm for grade A, US$28-40 for grade B and US$14-25 for grade B that CBRE released last month. Earlier last year, rents stood at nearly US$70 per sqm for grade A, US$45 for grade B and US$39 for grade C.

Actually, the economic slump has bitten much the budget of office building operators and investors since the fourth quarter of last year, when Cushman & Wakefield said the prime office rents fell to as low as around US$17-40 per sqm per month depending on locations.

Cushman & Wakefield said falling rents should assist companies in their cost cutting, and could mitigate the need for further headcount reduction.

“As the global crisis deepens rents have started to fall faster driven by landlords of new developments, and 2009 is expected to be a tenants market.”

Cushman & Wakefield predicted a lot of tenant movement between buildings this year. “We view this flight to quality. However, (it is) a good thing for the property market, and for Vietnam generally as the country seeks to maintain its competitive edge in the region.”