The grade B office vacancy rate increased by 5 percentage points year-on-year to 15.5%.

A report by another property consultancy, JLL, said the grade A office space absorption rate decreased by 28% to 7,300 sq.m.

The vacancy rate stood at 17%, equivalent to 79,000 sq.m. New supply has risen sharply since 2020 while demand remained stagnant.

The Vietnam Association of Realtors said demand fell as many businesses faced difficulties, forcing them to reduce their size and close down branches.

The director of a real estate brokerage based in Nam Tu Liem District said since the end of last year his company has closed branches in other provinces and reduced the size of its headquarters in Hanoi by two-thirds.

Its payroll has dropped to around 20 from more than 100 in early 2022. Companies in the technology and other sectors have also downsized their offices.

According to property consultancy Savills Vietnam, the number of office lease deals by IT companies halved in the first half of the year.

Bui Huu Anh, director of Maison Office, an office leasing firm with operations in Hanoi and HCMC, said most prospective customers who had inquired about leasing offices at the end of last year have delayed their plans.

Hoang Nguyet Minh, senior director of commercial leasing at Savills Hanoi, said tenants are increasingly prioritizing affordable office space, and so buildings with high rents, in the US$40-50 per square meter range, saw demand fall.

Many businesses have opted to rent serviced or co-working offices for the short term to save costs.

Anh said deals to hire co-working space in the first half of the year increased by 150 percent year-on-year. “Transactions increased, but most were for offices with fewer than 10 seats, and so overall lease of space still declined. Serviced offices and co-working spaces are temporary solutions for businesses in difficult circumstances.”

More office buildings will enter the market this year with a total leasable area of 90,000 sq.m. Vacancies at existing buildings are expected to increase as a result, according to CBRE.