Vietnam Town

When HCMC’s Saigon Trade Center rent went up from US$28 to $35 per square meter (sq.m) last year, Bui Viet Thuy Tien had to move her travel company elsewhere.

Now that rent at the company’s new location in the nearby Miss Aodai building is likely to rise by as much as 45 percent from its current $24 per sq.m, Tien’s Asian Trails may have to move again.

“We can stand it now, though rent accounts for as much as 12.5 percent of the company’s total costs,” said Thuy Tien, who pays some $7,200 per month for a 300 sq.m office.

“But when rent increases, it will eat too much into our profits. We won’t be able to bear it.”

Tien said travel agencies have to calculate their costs carefully as they do not make much profit.

At most, a travel company can count about 10 percent of its total revenues as profit, she said.

Many other business owners across the city are considering moving as office rent is spiraling out of control.

A square meter at Saigon Trade Center now costs $70, twice last year’s figure.

At other buildings in the city’s District 1, top-notch offices cost $50 to 60 per sq.m while middle class rent ranges from $30 to 40 per sq.m, according to property consultant CB Richard Ellis.

The struggle

Rents are simply too much for many who want to open restaurants, which require large areas of space.

District 3 cafe owner Nhan said he was thinking about moving to a cheaper location as the landlord had increased rent three times within just one year – from $10,000 to $12,000and then $15,000 per month.

Nhan said the landlord was now planning to up the ante to $20,000 per month.

“Landowners reason that since the dollar is falling and prices are increasing everywhere, they need to increase rent,” Nhan said.

He said they don’t take into consideration how much tenants have invested in upgrades.

Some food service providers say landowners prefer leasing to other kinds of business rather than restaurants and cafes.

The owner of a busy restaurant in District 1 said she had been forced out of her street front location as the landowner received an offer from a securities company.

“The securities company offered twice as much as I did and the landlord thinks stock companies are cleaner than restaurants.”

With space for rent in high demand, many landowners now agree to only short-term contracts with little protection for tenants.

Landlords can end the contracts suddenly if they want.

Restaurant owners say they are constantly worried their landlords will not renew expired contracts and lease to other businesses.

Pham Hoang Minh, head of the business office at Chau Ngoc Viet Joint Stock Company, said his company had secured a 10-year contract with PetroVietnam Tower.

He said the contract had terms to protect both sides if prices change or either side wants to end the contract.

But Minh said with long term contracts, tenants might lose big if their businesses did not register profit.

He said his company once had to compensate a landlord when it ended a 5-year contract just within 6 months after the location turned out to be unsuitable.

Dealing with the burden

For some businesses, moving to cheaper locations will solve the problem. For others, it is not so easy.

Asian Trials’ Thuy Tien said her company has to meet customers regularly, so moving to a cheap location out of the city’s center would be very inconvenient.

“With congestion so common on our roads now, it may take those hours to reach us – if they decide to come at all.”

To deal with the problem, Tien has thought about splitting her company into two departments, one of which stays in the center, and the other moves to a more affordable place to save money.

“This would not be convenient for us. But when rent reaches $50 per sq.m, we will have very few choices,” she said.

Others are thinking about buying houses to base their business to divest themselves of increasing rent forever.

Some are even pondering moving business out of the city altogether.

Owner of the Miss Aodai and Lancaster buildings Dung Thanh Thuy said it might be a good idea to move business to neighboring provinces.

Source: TBKTSG