The demand for rented office space in Hanoi increased sharply in the second quarter of this year, pointing to a gradual recovery of the domestic economy, said property experts.

According to the Savills Vietnam's report on the Hanoi property market for the second quarter of this year, the total occupancy was approximately 77,000 square metres, increasing 14.2 percent quarter-on-quarter (QoQ).

The demand in the secondary areas increased significantly by 175 percent QoQ due to the entry of two new projects: Gelex Tower and Coalimex Building, it said. There was also significant improvement in Thanh Xuan and Dong Da districts, which were up 25 percent to 35 per cent QoQ.

"Approximately half of the enquiries received at Savills were for office spaces in the central business districts, which were double the enquiries for the western and secondary areas," said Savills Vietnam.

"For large office spaces of over 500 square metres, 42 percent of the enquiries were for the western area," they said.

"Affordable rents and attractive incentives from land-lords motivated commercial tenants to move from villa-type offices to professionally managed office buildings," said the CBRE Vietnam.

According to CBRE Vietnam, average rents continued to decrease across the market, achieving 21.8 USD per square metre per month.

Grade A average asking rents decreased by 3.2 percent q-o-q, while Grade B rents recorded a slight decrease of 0.4 percent Q-o-Q.

On a year-on-year (y-o-y) basis, Grade B reported better performance with a slight 1.6 percent increase. Grade A, on the other hand, recorded a drop of 6.2 percent over the same period. Average asking rents stood at 30.4 USD per square metres per month for Grade A buildings, and 18.4 USD per square metres per month for Grade B buildings.

Savills Vietnam said, in the second half of 2014, 85,000 square metres from five projects in the secondary area are expected to be online. The largest project will be Lotte Center Hanoi, with approximately 45,000 square metres of space.

Up to 2016, 27 projects with more than 500,000 square metres at 36 percent of the total current stock will enter the market. All are under construction or being furnished. However, five projects supplying over 60,000 square metres have been delayed for several quarters.

Meanwhile, CBRE Vietnam said that moving forward, projects in the west will be under further pressure to slash rents as there will be enough properties in the market. The average rents are expected to go down while the vacancy rate will rise.

"Grade A buildings in the city centre will achieve higher occupancy rates as tenants have limited options in this segment. However, to compete with new entrants the older properties will need to renovate and upgrade," said CBRE Vietnam.-VNA