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News Release

New demand for Bangkok office space shrinking

Companies seek occupancy costs savings


Bangkok, 10 February 2009 - As economic conditions deteriorate, companies are looking for ways to reduce costs, among these by downsizing and cutting occupancy expenses. While a number of companies have reduced the amount of office space occupied, others are looking to relocate to more affordable office buildings, according to Jones Lang LaSalle, a professional services firm specializing in real estate.

Mrs. Suphin Mechuchep, Managing Director of Jones Lang LaSalle, said “Corporations have taken a wait-and-see stance as the magnitude of the crisis in the US financial system and the implications for the rest of the world became more apparent. As a result, leasing activity in the Bangkok office market, which was previously predicted to start picking up in the second half of 2008, failed to materialize.”

“Whilst new demand from business expansions and new startups are scarce, some companies are reducing office space requirements, following business downsizing or reconfiguring lay-outs for greater space efficiency. This is gradually reducing demand in the Bangkok office market and contributing to rising vacancy in the area,” Mrs Suphin added.
According to Jones Lang LaSalle’s latest study, the total stock of grade A office space in Central Business District totals 1.47 million sqm. Out of this total, 18.8% or over 200,000 sqm of space remains vacant, compared to 13.6% at the beginning of 2008. Two new office development projects are planned for completion this year. These include Asia Centre (27,400 sqm) and Sala@Sathorn (17,400 sqm), which are both located along Sathorn Road and scheduled for completion in the first and second quarter of this year, respectively.
Ms Yupa Sathienpabayut, head of office leasing services at Jones Lang LaSalle, said “Though new grade A office supply coming on stream in the CBD area is insignificant, vacancies are likely to remain above levels in recent years as new demand is limited and most existing tenants are unlikely to expand.”

“In addition, some tenants are looking to reduce occupancy costs, considering to relocate offices to buildings both within the CBD and fringe areas which offer more affordable rentals. As a result, most of the leasing activity in the Bangkok office market this year is likely to be dominated by lease renewals and relocations,” she added.
 
Jones Lang LaSalle is representing its corporate clients in the office leasing process, involving combined space of 30,000 sqm. The firm is also in negotiations with a number of companies reviewing leases, involving combined space of 50,000 sqm across Bangkok. Out of this 80,000 sqm, 80% is up for lease renewal and the remaining 20% is for office relocations.

 
Given rising vacancies and soft demand, average gross rentals for Grade A space in the CBD have dropped from THB 700 per sqm per month since peaking in mid-2007 to the current level of THB 670.

“Many landlords have become more accommodating, recognizing the heightened level of competition for tenants,” said Ms Yupa. “However, certain prime grade A buildings are still asking for rents as high as THB 800 per sqm per month, particularly for smaller spaces. Nevertheless, even these are below the peak in 2006 when asking rentals reached THB 900 per sqm per month,” Ms Yupa said.
 
Outlook
The vacancy rate is expected to remain elevated throughout 2009 due to the completion of new supply coupled with lower new demand. Some business expansions may be delayed or cancelled, while downsizing is looking to be just as probable. Nevertheless, contraction in demand is not expected to be as significant as it was during the Asian Financial Crisis, when business closures were widespread. Furthermore, some older buildings are no longer considered as truly prime and are now incapable of attracting prime-grade demand.
 
Nevertheless, rentals will continue to face downward pressure due to the weakened demand and higher vacancy rate.