Savills announces World Office Yield Spectrum 2H 2017

29 November 2017

Vietnam, once again since January 2017, proved to be the market that offered to most attractive office yields in the world.


Looking at the market over the next six months, a healthy deal pipeline and plenty of momentum suggest that real estate has not fallen out of favour as an asset class.

Expectations of higher interest rates have remained just that, expectations. Uneven economic data as well as rising geo-political tensions have combined to create an unstable environment for rate increases.

While prices remain generally high or continue to rise, however, volumes have softened as willing sellers are currently thin on the ground and potential purchasers balk at high valuations. We continue to believe that there is no shortage of capital out there and sovereign funds and institutions continue to raise their allocations to real estate, in some cases from single to double digits. Chinese capital meanwhile is becoming more selective.

With treasuries set to continue to underperform, real estate will remain a popular investment class and today’s low yielding environment should therefore persist. Should interest rates rise without being underpinned by strong growth (higher rental income), however, current yield levels would quickly look unsustainable.

Investment strategies are being influenced by opportunities being presented by digital disruption as well as demographic trends such as aging populations, urbanization and the rise of the millennial generation. Technology meanwhile continues to defy traditional definitions of real estate use as, for example, the difference between living and working environments and traditional bricks and mortar retail and logistics become less clear cut.


For three years running, optimism has dominated the Asian office sector as cheap money has continued to flood local markets and rents and capital values have continued to rise across the region.

The increasing capital inflows have resulted in cap rate compression to decade lows but buoyant demand has inevitably lead to more new prime office completions and vacancy rates are finally beginning to creep up.

Investors have generally adopted a positive outlook for local office markets, their confidence bolstered by strong economic growth expectations. The most active markets have been China, followed by Japan and Hong Kong. However, limited stock available for sale in prime areas has meant that investors have increasingly turned their attention to development projects in secondary locations.

Overseas investors’ transaction volumes increased by between 1% and 39% in 1H/2017 compared with 1H/2016, remaining in positive territory. The global search for yield has traditionally been one of the main reasons behind investment in the Asia Pacific office sector. The top 2 markets that offered the highest yields in the world remained Vietnam’s gateway cities: Hanoi at #1 position with 8.65% yield and Ho Chi Minh city at #2 position with 7.86% yield. Savills Vietnam’s Managing Director, Mr Neil MacGregor said that Vietnam office market had shown excellent performance, particularly grade A with occupancy rates reaching over 95% in CBD of the 2 cities.

“In light of various integration opportunities, economic reforms and booming economic growth in the past few years, Vietnam’s economy has welcomed consistently increasing flows of foreign investment into the country which, in turn, has helped secure Vietnam’s sustainable growth. Particularly, hosting the year-long APEC Vietnam 2017 meetings, the country is having a great opportunity to showcase the investment potential in coming 2018. South Korea, Japan, Singapore, Taiwan and Hong Kong are some of the leading names in foreign investment and are all member economies of APEC, proving the importance of this forum to Vietnam. As the Vietnam economy thrives, the market will continue to see further interest in all real estate sectors, with a focus on office and hospitality, driven by the increasing FDI and booming tourism, and more recently, industrial and logistics real estate developments.”

Regarding Asia Pacific outbound investment in the office market, three major capital sources have proved dominant; Hong Kong; China; and South Korea. The UK was the most attractive destination for Asian investors (despite the risks of Brexit) due to a weak pound, followed by the US.

While there is a long term argument that asset values in the Asian office markets reflect qualitative easing rather than economic fundamentals, looking ahead, we would pay attention to the impact of volatile swings in global capital flows and currency movements once the interest rate environment begins to normalize.


Key Contacts

Linh Dinh Huong

Linh Dinh Huong

National Head
Marketing Communication


+84 24 3946 1300 Ext 112