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News Release

Bangkok

Demand for office space likely to pick up as economic outlook improves

Political turbulence affects the market less than expected


The impact of the political unrests between April and May on the Bangkok office market has been less significant than expected, with rents for Grade A offices in Bangkok’s Central Business District (CBD) falling only marginally in the second quarter of 2010. Leasing activity resumed in June and is likely to pick up gradually in the remainder of 2010 as outlook for the overall economy is improving, according to Jones Lang LaSalle, a professional services firm specializing in real estate.
 
Mrs Suphin Mechuchep, Managing Director of Jones Lang LaSalle, said “Political demonstrations in April and May caused business interruptions in central Bangkok and a short halt in leasing activity in the office market. Nevertheless, conditions have returned to normal more quickly than expected and we saw leasing activity in the office market resuming.”
 
She continued “Despite the political turbulence in the second quarter, there remains some good news for Thailand as the Thai government in June raised its forecast for gross domestic product growth this year to as much as 6%, while a recent forecast by the International Monetary Fund was more positive, saying Thailand’s economy may expand between 7% and 8% this year. This is also good news for the Bangkok office market as economic growth would allow companies to expand business and consequently require more office space.”
 
According to the latest research by Jones Lang LaSalle, the average gross rent for Grade A office space in the CBD dropped only slightly by 0.5% in the second quarter of 2010 to THB 635 per sqm per month from THB 638 in the first quarter.
 
Whilst no new Grade A office supply entered the market in the second quarter, the average vacancy rate in the CBD rose slightly from 18.5% in April to 19.5% in July. This was due largely to the relocations of some corporate occupiers to areas outside the CBD. For instance, SCB Securities and SCB Asset Management relocated to SCB Park on Phaholyothin Road, while Citigroup transferred to Interchange 21 on Asoke Road.
 
Leasing activity is picking up but pressure on rents continues due to slow demand and growing supply in the second half of 2010
 
Ms Yupa Sathienpabayut, Head of Commercial Leasing at Jones Lang LaSalle, said “Leasing activity in the Bangkok office market saw a marked slowdown during the anti-government protests between April and May.  Over the period, there was no demand for office space from newly established businesses while existing occupiers planning business expansions shelved their plans. However, after the protests came to an end, leasing activity started to come back, showing that the impact of the recent political turbulence was limited.”
 
“We also saw less downsizing and consolidations this year, compared to 2008 and 2009. These explain why conditions in the Bangkok CBD office market in the second quarter were better than expected, despite the political unrests,” said Ms. Yupa.
 
However, Jones Lang LaSalle expects office vacancies to rise further in the remainder of 2010 and will put more pressure on rents. This is because a considerable amount of new office space will enter the market in the second half of 2010, while demand is in its early stage of recovery and thus its pace of growth remains slow.
 
According to Jones Lang LaSalle’s research, approximately 77,600 sqm of additional space from two buildings will enter the market the CBD office market in the second half of 2010 and will raise the total CBD Grade A supply to 1.33 million sqm by the year end.
 
Market likely to recover in 2011 in response to brighter economic outlook
 
Ms Yupa said “Should Thailand’ economy grow between 6% and 8% as forecasted, we can expect the Bangkok office market to bottom out at the end of 2010 and start to recover in 2011. This expectation is realistic because experience shows that there is a clear correlation between the demand for office space and the economic growth.”
 
Since 2007, Thailand’s economic growth and demand for office space have slowed. The country’s GDP grew 4.8% in 2007 and 2.5% in 2008, and saw a contraction by -2.2% in 2009. Demand for office space over the same period was on the same track, with the net take-up levels between 2007 and 2009 averaging slightly over 55,000 sqm per annum. This is in contrast to the average annual take-up rate of over 250,000 sqm between 2000 and 2006 when the country witnessed an economic growth rate of above 6%.
 
In 2011, only 28,000 sqm of Grade A office supply is planned for completion in the CBD while demand is expected to surge.
 
“Provided that the Thai economic growth in 2011 continues at the same pace as in 2010 or faster, we expect leasing activity in the Bangkok office market to surge significantly next year. This is because there has been a huge backlog of demand in the office market as companies have put their expansion plan on hold over the past five years due to political and economic uncertainties,” said Ms. Yupa.
 
“Companies looking to capitalize on the current low rents in the CBD Grade A office market must act fast. With demand tending to surge in 2011 and very limited new supply planned for completion over the next three years, incentives offered to tenants would be less generous and premium office rents will rise,” she concluded.