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News Release

Bangkok

Ongoing political unrest hurting Bangkok office market

Companies in protest areas seek temporary substitute offices


Whilst hospitality and retail sectors have been obviously been hard hit by the ongoing political unrest, the Bangkok office market is now being impacted, according to Jones Lang LaSalle, a professional services firm specializing in real estate.
 
Mrs. Suphin Mechuchep, Managing Director of Jones Lang LaSalle, comments ‘Earlier, we anticipated that the Bangkok office market would bottom out by the end of 2010. At the beginning of this year, the market showed some signs of improvement with rents stabililizing after declining for consecutive three years between 2007 and 2009. However, as the political turmoil has escalated, the recovery in the office market may require more time than previously expected.’
 
Jones Lang LaSalle’s latest research indicates that take-up of Grade A office space in Bangkok’s Central Business District (CBD) expanded slightly in the first quarter of 2010 whilst no new supply was completed. As a result, the average vacancy rate fell from 18.9% in January to 18.5% in April. The average gross rent was relatively unchanged at THB638 psm pm after undergoing a 4% drop in 2009.
 
‘The ongoing political turmoil will eventually have a negative impact on the office market,’ says Mrs. Suphin. She explains that demand in the Bangkok office market, which is very reliant on the domestic economy, could suffer from slow demand due to the ongoing political unrest during the second quarter of this year.
 
‘Anti-government demonstrations have become increasingly disruptive, with hotels, shopping centers and offices in Bangkok’s prime Ratchaprasong area needing to temporarily shut down. Depending on the duration, the disruptions could shave as much as 2 percentage points from GDP growth.’
 
Low leasing activity
 
Ms Yupa Sathienpabayut, Head of Office Leasing at Jones Lang LaSalle, says ‘Leasing activity in the Bangkok office market has seen a marked slowdown over the past four weeks since anti-government protestors began occupying the Rajaprasong area. While there has been no demand for office space from newly established businesses, existing occupiers planning business expansion have shelved plans, adopting a wait and see approach. As a result, most of the actual ongoing leasing activity is for lease renewals.’
 
The expansion of office space demand could further slow. However, the limited amount of new office supply is likely to help sustain overall conditions in the Bangkok office market. According to Jones Lang LaSalle’s research, there is only 136,000 sqm of new office space under construction in Bangkok, with 77,600 sqm scheduled for completion in 2010.
 
‘There will be pressure on rents. Nonetheless, we do not expect landlords to offer a significant discount on rentals but may offer other forms of incentives,’ says Ms Yupa. ‘There are some companies taking advantage of the current market condition, negotiating for very favorable lease terms and conditions,’ she adds.
 
Temporary offices outside protest areas needed
 
The occupation of Ratchaprasong has generated demand for temporary substitute offices located outside the areas occupied by demonstrators as the operations of some companies located in the protest areas have been disrupted.
‘We have received an increasing number of enquiries from companies in the Ratchaprasong area for temporary offices located outside the area. These enquiries require fully or partly fitted office units that are immediately available at an affordable rent,’ says Ms Yupa.
 
'Though most office buildings have some space vacant after some tenants moved out or downsized, most of this space has been reinstated, and thus cannot immediately accommodate,” Ms Yupa explains.
 
'Having said that, there are a few buildings that can cater to these temporary workplace requirements. These buildings have space which has not yet been reinstated by previous tenants. Basic office facilities including chairs, tables, phone lines and internet access are provided. Lease terms for these temporary offices are flexible,’ says Ms Yupa.
 
'Going forward, we believe that companies would require more efficient corporate real estate strategies driven by a rising need for workplace security and staff safety,' she adds.
 
CBD Prime Grade Office Market - First Quarter 2010
Supply
 
1.41 million sqm
Net Take-up 
 
5,500 sqm
Vacancy Rate (quarter on quarter change) 
 
18.5% (-0.4%)
Average Gross Rents (quarter on quarter change)
 
638 THB psm pm (-0.2%)