AMCHAM HANOI OFFICE SPACE

AND REAL ESTATE SITUATION

VIETNAM 2008
Presented by:
Richard Leech
Executive Director
CB Richard Ellis Vietnam
Date: 22 May 2008

AGENDA
Review of current situation of property market in Vietnam
Global Economic Environment
Implications for Vietnam Property Market
General Trends
Current and Future Office Market
What is truly happening?
Where will it go?
What can companies do?

CB Richard Ellis | Page 2

CURRENT SITUATION - VIETNAM

Strong market
Supply is still limited but its changing
Low Vacancy strong queues to get prime office, serviced apartment
and retail space
Rents Rising
Land Prices stabilizing
Rising levels of inflation

CPI over 21% in Apr 08

Building Mat. Up 22%

Food up 34%

State Bank of Vietnam raised the prime rate

From 8.75% to 12%

But what about the rest of 2008?
CB Richard Ellis | Page 3

GLOBAL ECONOMIC ENVIRONMENT

Gold prices strong from US$650 in May 07 to US$920 in May 08
Oil prices hit record highs ($128.95)
Inflation creeping up
US Economic Slowdown
Sub-Prime Mortgage Crisis
Interest Rates Decreasing
Construction costs increasing
Feb 07

0.6cm Steel Rod (REBARS)

Ron 92 Petrol

Feb 08

Increase

8,650 15,600
10,100 14,500

80%
44%

What does this mean for global economic growth?

How will all this impact the property market in Vietnam?

CB Richard Ellis | Page 4

IMPLICATIONS FOR VIETNAM

Shifting of capital out of developed markets and into developing markets
Diversification, spreading risk
Preferably into economies with attributes such as:
Strong economic growth coupled with domestic spending
Stable political landscape
Increased interdependence on Asia, less dependent on US/EU economy
Appreciation of capital values - Real Estate
Under Supply Unmet Demand
All Property Sectors experiencing vacancy declining to zero
Benefiting from tourism growth
US$5.1 billion in FDI in Q1 2008. $4.5 billion invested in real estate (88%)

CB Richard Ellis | Page 5

GENERAL REAL ESTATE TRENDS - VIETNAM

Flow of funds from Korea, Singapore, Malaysia, Japan and
Taiwan
New Players: The Emirates, Israel, Russia and Scandinavia
Expecting US to be significant player, institutional investors
Legal Trends Decree 84 and Decree 153, Foreign Ownership
Traffic getting worse
Perceived image of Vietnam as land of opportunities
Stock Market decline

CB Richard Ellis | Page 6

DECREE 153 - Guidelines for the Law on Real Estate Business

ADVANCE PAYMENT
Initial payments may be collected only after the developer has
commenced construction; and technical infrastructure
Investors must use advance payments from buyers for the sole
purpose and objective of investing the project.
The commercial loan interest must be specified in the contract for
the purpose of compensation for breach of contract.
LATE PAYMENT
Penalties for late completion based on total monies invested
CB Richard Ellis | Page 7

FOREIGN OWNERSHIP

Good News:
Foreigners can own apartments!!

CB Richard Ellis | Page 8

FOREIGN OWNERSHIP

Bad News:
Can only own apartments (no houses)
Only leasehold (50 years), no freehold
Can only purchase one unit and may not sell within the
first year.
After 50 years, foreigner has 12 months to sell unit or it
will become nationalized
Many restrictions (Must be one of the following):
Resident work permit for over one year
Married to Vietnamese
Owner of Foreign Enterprise not in property sector
Received a medal from Vietnamese Government
Received honorary degree from Vietnamese University
Head of Diplomatic Agency or Representative in Vietnam

CB Richard Ellis | Page 9

GENERAL REAL ESTATE TRENDS - VIETNAM

Average of 33 cars and 1,230 motorbikes registered each day in 2007.
Where to park??

CB Richard Ellis | Page 10

GENERAL REAL ESTATE TRENDS - INFRASTRUCTURE

Thanh Tri Bridge Completed 2007
Vinh Tuy Bridge still under construction
Lang Hoa Lac Highway will connect western
Hanoi (My Dinh) with Ha Tay and Hoa Binh
Hanoi airport expansion with
new international terminal by
2010 (US$419 million) and
$500 million more planned
between 2010 and 2020.
Pilot tram line kick-started by
French loan (US$312 million).
Will run from Cau Dien to
Hanoi Railway Station (True
completion date TBA)
CB Richard Ellis | Page 11

GENERAL REAL ESTATE TRENDS - VIETNAM

Perceived image of Vietnam Cheap manufacturing to IT, Business Process Outsourcing ,
Call Centres

CB Richard Ellis | Page 12

RESIDENTIAL TRENDS IN HCMC

HCMC

CB Richard Ellis | Page 13

RESIDENTIAL TRENDS IN HANOI

$4,025

$1,950
$1,800
$500

CB Richard Ellis | Page 14

$3,440

$1,880

WHAT IS GOING ON?

Current Asking Grade A Rental Rate: $51.29
Q1 2007 Grade A Rental Rate: $32.46
Growth: 58%

Where Are
We Going?

Where Are
We Now?

What Should
We Do?

CB Richard Ellis | Page 15

CURRENT GRADE A RENTAL RATES

CURRENT ASKING RENT IN HANOI GRADE A PROPERTIES MAY
2008
70.00
US$/sm/month

60.00
50.00
40.00
30.00
20.00
10.00
0.00
Opera
Business
Centre

Average

Vietcombank
Tower

CB Richard Ellis | Page 16

Sun Red
River

Note: Hanoi rents calculated as net rent on the net area

63 Ly Thai
To

Hanoi
Somerset
Grand

Press Club

Daeha
Centre

International
Centre

Central
Building

Monthly Asking Rent

CURRENT GRADE A RENTAL RATES

CURRENT ASKING RENT IN HCMC GRADE A
PROPERTIES
70.00

US$/sm/month

60.00
50.00
40.00
30.00
20.00
10.00

Note: Grade A HCMC rents calculated as net rent on the gross area
CB Richard Ellis | Page 17

The
Metropolitan

Sunwah
Tower

Diamond
Plaza

Saigon
Tower

Saigon
Centre

0.00

REGIONAL MARKET RENTAL COMPARISON

180
125
100

RENT

Hanoi Grade A: increase 58% y-o-y

HCM Grade A: increase 103% y-o-y

CB Richard Ellis | Page 18

Tokyo

Singapore

Hong
Kong

65

HCMC

30

Hanoi

24

Beijing

22

Bangkok

50

Seoul

200
180
160
140
120
100
80
60
40
20
0

Jakarta

US$psm/month

ASIA PRIME OFFICE RENT Q1 2008

GROWTH IN RENTS IN HANOI

One Year of Change
HANOI OF F ICE RENT
55.00

US$ PSQMPM

50.00
45.00
40.00
35.00
30.00
25.00

Grade A

Grade B

Note: Average Grade A rents have surpassed US$51 as of May.

Net Rents on Net Area
CB Richard Ellis | Page 19

2008 Q1

2007 Q4

2007 Q3

2007 Q2

2007 Q1

20.00

GROWTH IN RENTS IN HCMC

One Year of Change
HCMC OFFICE RENT
$70

$65

$65

Rates (USD) per month

$60
$55
$50

$45

$45
$40

$38
$35

$32
$30
$25

$26.50
$24

$20
Q1 2007

Net Rent on Gross Area

CB Richard Ellis | Page 20

Q2 2007

Q3 2007
Grade A

Grade B

Q4 2007
Grade C

Q1 2008

HANOI AND HCMC OFFICE MARKETS: SHORT SUPPLY 2008

A Lack of Supply

Petronas Twin Towers

GFA: 395,000 sm

GRADE A & B OFFICE STOCK IN HANOI &

HCMC Q1 2008

Net Lettable Area (sm)

400,000

95,000 sm more
than all of Hanoi
Grade A & B office
market

CB Richard Ellis | Page 21

300,771

304,172

Hanoi

HCMC

300,000

200,000

100,000

Cities

No. of Grade A
Buildings

No. of Grade B
Buildings

Hanoi

27

HCMC

19

HCMC NEW OFFICE BUILDINGS 2008

Gemadept
Q4/2008
GFA: 19,500 sm

Royal Center
Q2/2008
GFA: 16,784 sm

CB Richard Ellis | Page 22

Sailing Tower
Q3/2008
GFA: 14,600 sm

Fideco VP Bank Tower

Q2/2008
GFA: 20,078 sm

HANOI NEW OFFICE BUILDINGS 2008

Asia Tower

Sun City

Total New NLA (3 Buildings):

20,000 sm
Total Now Available: 1,100 sm
CB Richard Ellis | Page 23

Viet Tower

INTERNATIONAL GRADE A vs VIETNAM GRADE A

International Grade A requires 1,000 sm+ floorplates, ample parking, prime
location, quality management and maintenance
Many buildings in Hanoi do not fit these standards, but rents are the true indicator.
It is a Landlords market
GFA / Carpark Ratio
Ratio
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
Prime Center

Opera Business Center

North Asia Tower

Viglacera

Vietcombank Tower

Ocean Park

Vincom Towers

Hanoi Tower

Hanoi Central Office Building

International Standard
CB Richard Ellis | Page 24

NEAR 100% OCCUPANCY IN 2008

Cities

Grade A

Grade B

Hanoi

98.60%

98.65%

HCMC

100%

100%

Translates to 800 sm of class A office available (Sun City), and

2,700 sm class B (VIT Tower, North Asia Tower, Kinh Do
Building, Vincom, Asia Tower)
New supply taken quickly and at a premium (Sun City asking
US$66 psm, small floor plate, no parking)
Grade A & B offices in HCM remain fully occupied
Most new supply will not be in Hanoi CBD
CB Richard Ellis | Page 25

HANOI OFFICE MARKET ASSESMENT

Lease Term
CURRENT LEASE TERM OF GRADE A AND B OFFICE BUILDINGS
50%

Percentage of tenants

40%
30%
20%
19%

17%

25%

22%

10%

12%
5%

0%
1 year

2 years

3 years

5 years

Length of lease

CB Richard Ellis | Page 26

10 years

n/a

CB Richard Ellis | Page 27

WHERE IS THE SPACE?

CB Richard Ellis | Page 28

CB Richard Ellis | Page 29

WESTWARD PRESSURE
Go West The Future of Office in Hanoi

CB Richard Ellis | Page 30

CB Richard Ellis | Page 31

Se

cu

r it

/s

et

i re

ca

t io

t io

er

en

ie

w
en

po
ev
Lo

pr

up

em

ili
t

n/

io

s
ge

or

ct

ac

ru

ag

/F
an
k

ac

ty

rd

st

at

ty

on

ili

ud

ev
B

in

ab

ir

ap

El

te

ac

rk

Sp

Pa

es

la

cc

ts

ie

il e

lit

ui

ti n

rP

A
oo

on

/ IT

it y

/F

er

op

af

Pr

iv

/G

ct

us

ne

at

on

St

Fl

ci

To

Fa

sh

gh

ng

Li

Fe

No. of times listed as a priority

HCMC OFFICE MARKET ASSESSMENT

Location and Security are the main concerns for most tenants
The Top 3 Priorities - Surveys 1 and 2
66 interviewees, 3 priorities each

45

40

35

30

25

20

15

10

HANOI OFFICE MARKET ASSESMENT

Future Plan to Relocate
Many companies will be forced
to relocate because of their
expansion plan or increasing
rents making their current office
space unfavourable

Many embassies (due to

diplomatic requirements) and
companies in prime office space
(i.e. grade A in the CBD) do not
plan to relocate.

CB Richard Ellis | Page 32

FUTURE PLAN TO RELOCATE OF TENANTS IN GRADE

B OFFICE BUILDINGS

No
15%

N/a
6%
Yes
79%

FUTURE PLAN TO RELOCATE OF TENANTS IN GRADE

A OFFICE BUILDINGS
n/a
23%
No
31%

Yes
46%

PREFERRED OFFICE LOCATIONS

The city is heading west, but not everyone is willing
Others: 2%
N/a: 32%

8%

3%
40%

3%
12%

If you plan to expand, you may have little choice than to go west
CB Richard Ellis | Page 33

WEST OR BUST

CB Richard Ellis | Page 34

CB Richard Ellis | Page 35

DECENTRALIZING HCMC

CB Richard Ellis | Page 36

MY DINHS CENTRAL LOCATION IN HANOI EXPANSION

My Dinh and Pham Hung
could be at the centre of
the expanded Hanoi
Easy access to the airport
Easy access to New
Urban Areas in Yen So,
Ha Tay and Dong Anh
Possible Future Location
of Government Offices
(true plan unclear)

CB Richard Ellis | Page 37

Westside
(My Dinh)

MORE PLACE FOR AN EXPANDING OFFICE MARKET

Area and Population of Hanoi

CB Richard Ellis | Page 38

Area
(sq.km)

Population
(thousand)

Ha Tay Province

2,198

2,543

Me Linh District
(Vinh Phuc Province)

141.3

182

Four communes in Luong Son

District (Hoa Binh Province)

87.7

>20

Total Increase

2,427

2,755

Current Hanoi

921.8

3,388

Expanded Hanoi

3348.76

6143

Increase (%)

263%

81%

BENEFITS OF DECENTRALIZED LOCATIONS

Rents are expected to be between 50-60% of current
central Grade A
Greatly improved parking ratios
Professionally managed buildings
No longer a landlords market (reasonable contract
negotiations)
Future Offices in Pham Hung will have many
advantages:
Modern Design
Growing Interest in Green Buildings
Improved Infrastructure
Amenities and Recreational Facilities

CB Richard Ellis | Page 39

TROPHY OFFICE BUILDINGS TO THE WEST

Coralis

Charmvit

Keangnam Enterprises Ltd.

The Landmark
Office GFA: 62,000 sm
Lieu Giai,
Ba Dinh, Hanoi

Hanoi Plaza Hotel

Office GFA: 54,000 sm
Tran Duy Hung,
Cau Giay, Hanoi

Keangnam Hanoi Landmark

Office GFA: 209,746sm
Lot E6, Pham Hung Road,
Tu Liem District, Hanoi

CB Richard Ellis | Page 40

WORLDS TALLEST BUILDINGS

508m
492m

474m

452m

442m

421m

414m
391m

381m
336m

2004

World Finance
Center
Shanghai,
PRC
2009

CBRE

CBRE

Taipei 101
Taipei,
Taiwan

Kowloon Station
Hong Kong
SAR

Petrona Towers
Kuala Lumpur,
Malaysia

Sears Tower
Chicago,
USA

2009

1998

1974

1998

CBRE

CBRE

CBRE

Jin Mao Tower Two IFC

Hong Kong
Shanghai,
SAR
PRC

CITIC Plaza
Guangzhou,
PRC

Empire State
New York
USA

2003

1997

1931

CBRE

CBRE

CBRE

Hanois 70-storey Hanoi Keangnam Landmark and how it compares

to Worlds tallest (17th tallest upon completion).
Burj Dubai set to become tallest at 1.2 km high
CB Richard Ellis | Page 41

Keangnam
Hanoi
Landmark
Towers
2010

FOCUS ON SUSTAINABILITY
A Green Building incorporates:

Design
Construction
Operational practices

that significantly reduce or

eliminate the negative impact of
buildings on the:

CB Richard Ellis | Page 42

Environment
Occupants

Source: Green Building Council of Australia

Green Buildings have strategies to address

Energy efficiency
Reduction of greenhouse gas emissions
Water conservation
Waste avoidance, reuse and recycling
Pollution prevention - noise, water, air, soil &

light
Enhanced biodiversity
Reduced natural resource consumption
Productive and healthier environments
Useable buildings
Social amenity
Transparent reporting
CB Richard Ellis | Page 43

Source: Green Building Council of Australia

WHAT SHOULD WE DO?

CB Richard Ellis | Page 44

PROJECTED TIMELINE FOR MAJOR OFFICE PROJECTS

CB Richard Ellis | Page 45

CONCLUSION
CBRE expects the westward movement to occur by
2010-11 due to the improved building quality,
infrastructure and increased residential areas for
staff
Rates outside the current CBD should be nearly half
of current rents (Hanoi and HCMC)

Cannot expect demand to keep up with supply when rates

outpace Bangkok
No one will make a regional hub in the market

Companies have started considering different

locations for front office and back office
Small markets by their nature are volatile and
dynamic
CB Richard Ellis | Page 46

CONCLUSION
Lock in your lease?

Keep it short term and flexible

No choice but to pay higher rates now, but preserve ability to move when
rates drop
With supply increasing three to four fold, landlords will be in a very
different position in three years

Be aware of the risk

Waiting for the new supply means you trust them to finish on time.
How much will actually finish by Q3/2010 (1000th anniversary of
Hanoi)?

What can you do today?

Stay where you are

Renew annually / 3 years
Cap the increases
Cap the service charge
Be aware of Net area vs Gross area rents

CB Richard Ellis | Page 47

OTHER OFFICE OPTIONS VILLAS

Advantages:
Lower rental rates
Cheaper utilities Pay utilities directly
No service charges
No overtime fees

Disadvantages:
Higher administrative costs (dealing with utilities directly)
Uncooperative / Ineffective floor layouts
Security
Lack of parking space
No backup electricity system
No central air conditioning
CB Richard Ellis | Page 48

OTHER OFFICE OPTIONS SERVICED OFFICE

An office or office building that is fully equipped and managed by a
facility management company, which then rents individual offices or
floors to other companies

Advantages
Quality furnishing
Central locations
Flexible lease term
Immediate availability
No / low start-up cost
Popular with business startup,
representative office

Disadvantages
Small space
Lack of privacy, shared environment
Automatic annual rent escalations
Miscellaneous charges can be high if not negotiated or managed

CB Richard Ellis | Page 49

OTHER OFFICE OPTIONS BUILD TO SUIT

Growing trend with major Vietnamese firms (PetroVietnam,
VNPT, FPT)
Allows control of building, but need to be big enough to justify the
construction.
Owning a building is a status symbol
Hedges against market volatility
Land costs will be restrictive

Last and certainly not least.

CB Richard Ellis | Page 50

OTHER OFFICE OPTIONS MOVE OUT OF HN / HCMC

Danang and Hai Phong have both developed quality

office buildings and fledgling office markets
Many new buildings are under construction or in
planning in both cities
Benefits of Tier 2 cities:
Drastically lower rents
More influence in market
Great import / export access (HP)
Attractive coastal location (DN)
Cheaper labor costs

CB Richard Ellis | Page 51

CBRE Global Office Locations

THANK YOU!

www.cbrevietnam.com

CB Richard Ellis | Page 52