Hanoi offers the highest office yield globally: Savills
The Vietnamese capital city of Hanoi had the highest office yield in the world, with market yield at 8.57%, according to the Savills World Office Yield Spectrum in the second half of 2018.
Following Hanoi, the Philippines’ capital, Manila; South Australia’s cosmopolitan coastal capital, Adelaide; Vietnam’s largest city, HCMC; and Western Australia’s capital, Perth, round out the global top five.
For the third time since January 2017, Hanoi ranked first globally for its central business district (CBD)’s Grade A office yield at 8.57%. Previous runner-up HCMC dropped to Number 4, with market yield at 7.36%.
High yields indicate an attractive rental income against the capital value of office buildings, and the fact that Hanoi and HCMC are among markets that offer the highest yields globally shows healthy rent and occupancy prospects for these cities, Hoang Nguyet Minh, who serves as an investment manager at Savills Hanoi, said in a statement.
HCMC enjoyed its best performance of the last five years, with average rents increasing 8% year-on-year and a very high occupancy rate of 97%, while Hanoi recorded a year-on-year increase of 3% in average gross rent in the fourth quarter of 2018 and a steady occupancy rate of 95%, with improved Grade A performance in non-CBD areas.
“Understandably, these markets have been drawing significant interest from international investors, Singaporean, Japanese and Korean investors in particular. Buyers’ demand remained high, yet there were very few investment transactions in 2018 due to the shortage of available properties for sale,” Minh said.
A notable transaction was the January acquisition by Japanese firm Nomura Real Estate of a 24% ownership interest in Sun Wah Tower, a Grade A office building in HCMC.
She cited Savills Research in previous office yield spectrum publications as indicating that Hanoi and HCMC had witnessed a slide in yields from the second half of 2015 to the second half of 2018.
“This again was caused by the limited supply of available office developments for sale, which has resulted in more aggressive bidding prices from buyers, driving yields further downward. The office sector is currently a seller’s market in Vietnam; in other words, if you are an office development owner, now is a good time to sell,” she explained.
The local property consultant Savills Vietnam said in a report on the Hanoi real estate market in the final quarter of 2018 that stock in the office segment was stable quarter-on-quarter at nearly 1.7 million square meters. Grade A supply remained unchanged, while Grade B welcomed two new buildings.
Overall market performance remained stable, and the most significant change was a 3% year-on-year increase in average gross rent. Improved Grade A performance in non-CBD areas resulted in an upward trend overall, despite a slight quarter-on-quarter reduction in CBD rent.
The consultant predicted that there will be a new supply of roughly 500,000 square meters of properties until 2020. Five Grade A projects are expected to enter the market later this year.