E-COMMERCE HITS SHOPPING CENTRES BUT BOOSTS OFFICE SPACE MARKET

Despite heavy advertising to attract tenants, many commercial centers have still found it hard to attract brick-and-mortar stores. As a result, some shopping centers are being used for office space rather than retail establishments.

Some real estate specialists say the shopping center slowdown is due to the e-commerce boom.

Pham Hung Thang, a lecturer at the HCM City University of Finance and Marketing, told Dau Tu Chung Khoan (Securities Investment) newspaper Viet Nam had room for more e-commerce development thanks to the high level of internet use among its population.

The number of internet users in the country is expected to reach nearly 60 million in the next four years, and e-commerce is expected to grow at an annual rate of 30 to 50 percent.

The development of smartphones and e-wallet technologies has contributed to this growth.

Experts worry that online purchases will supplant in-person transactions and make it hard for commercial centers to stay in business.

For example, the Pearl Plaza Commercial Centre in HCM City has seen its number of vacancies rise, while none of the fifth floors of Van Hanh Mall is leased.

The office space real estate segment, meanwhile, has benefited from the rise of e-commerce.

According to a report by CBRE Viet Nam, rental prices in HCM City office buildings have continuously increased. Third-quarter prices across the board were higher than in the previous quarter.

A-grade office rent posted a third-quarter increase of 7 percent, representing a 17 percent annual rise. New buildings are being fully leased very quickly, causing a shortage and driving up prices. 

B-grade office rent also increased, rising 7.3 percent over the previous year.

Monthly rent for a-grade office space was US$43 per square meter, while B-grade office space went for $23 per square meter. Office vacancy rates remained below 5 percent.

Another study by commercial real estate development firm JLL Viet Nam showed most of the new renters are IT companies. The study predicts technology groups will occupy 15 to 25 percent of total rentable 

office space within the next decade, representing a huge increase over the 5 to 10 percent they occupied over the past three years.

Five years ago, HCM City had the third most technology companies of any city in the region, trailing only Manila and Singapore.

Things have changed over the past three years. HCM City has surpassed Bangkok, Jakarta, Kuala Lumpur, Manila, and Singapore to attract the most technology firms of any city in the region.

“Nowhere is the technology sector’s increasing demand for office space more evident than in Viet Nam,” said Stephen Wyatt, general manager of JLL Viet Nam. 

“The country is catching up with the rapid development of other regional markets thanks to its young, dynamic, tech-savvy business people.”

“We have seen a significant increase in demand from technology and co-working companies over the past three years and expect this trend to continue over the next five years," he said.

JLL recently began advertising a 10,000 sq.m e-commerce office space in HCM City, the largest office leasing transaction the city has seen in a decade.

A representative of JLL said the selection criteria for office space were influenced by factors such as potential Government support and convenience for clients.

These elements constitute an ecosystem that is conducive to the development of start-up businesses. In big cities, tech companies are focused on finding office space in prominent buildings, 

close to public transport, and integrated with the city. They want employees to live, work, and play nearby.

These companies are often the first to lease the latest buildings.

Technology companies have become an important group of tenants, and investors and developers need to build new office space to keep pace with demand.

Technology companies are always looking for high-quality office space to attract talent. Director of market research for JLL South East Asia Regina Lim says developers need to consider the needs of their customers.

Integrating flexible co-working space can boost demand for an office building.

Flexible workspace has increased by 40 percent annually over the past three years and currently accounts for 2 percent of the area’s office space, up from 0.5 percent in 2015.

Lim says this is because technology groups are always looking for a sustainable business environment and are supported by strong economic and social perspectives.

Over the next decade, e-commerce and flexible co-working space will continue to dominate the market. As e-commerce companies expand, online gaming and e-sports companies could be 

the next group of tenants to fill offices in Jakarta, Bangkok, Manila and HCM City.