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News Release

Bangkok

Demand for Grade A office space picks up in Q1

But high vacancies continue to put pressure on rents


Bangkok – April 27, 2011 / The Bangkok office market saw signs of improvement in the first quarter of 2011 with an increased volume of leasing activities. While improved global and domestic conditions allowed for business expansions, more affordable rents encouraged companies to relocate to better quality buildings, according to Jones Lang LaSalle, a professional services firm specializing in real estate.
 
Mrs. Suphin Mechuchep, Managing Director of Jones Lang LaSalle in Thailand, said “While most economies around the world have recovered from the global financial crisis, Thailand posted a strong GDP growth of almost 8% in 2010. Consequently, sentiment in the country’s business sectors has improved as reflected by increased demand for office space in Bangkok over the first quarter of 2011.”
 
“However, it is too early to conclude that the recovery of the Bangkok office market has begun as a considerable amount of supply remains vacant. In addition, demand for office space relies a lot on the country’s overall economy, whose outlook remains uncertain,” said Mrs. Suphin. “There are a number of challenges that Thailand’s economy has to go through – political uncertainty and rising fuel prices and interest rates,” she explained.
 
Grade A office market in CBD witnessed growth in demand
 
Unlike in 2010, the office leasing market was very active in the past quarter, particularly in the Grade A segment in the CBD area. According to the latest study by Jones Lang LaSalle, demand for Grade A office space in Bangkok’s CBD improved in the first quarter of 2011. Net absorption totaled 8,640 sqm over the quarter, compared to 2010 when demand showed no growth.
 
Ms Yupa Sathienpabayut, Director of Office Leasing at Jones Lang LaSalle, said “Apart from improved economic conditions, more affordable rentals were another major factor that encouraged more leasing activity in the CBD. There have been many companies taking advantage of the down market by expanding or relocating to better quality buildings in prime business locations.”
 
“While relocations have continued to represent the majority of the leasing activity, we have seen more expansions and also a few new business setups. Industries that showed strong demand for office space in the first quarter of 2011 include consumer goods, pharmaceutical products and IT,” said Ms Yupa.
 
High vacancies put downward pressure on rents
 
Despite the positive net take-up, the average rental of Grade A office space in the CBD fell slightly from THB 624/sqm/month at the end of 2010 to THB 615/sqm/month at the end of March 2011. This was due to the strong competition among Grade A office buildings in the CBD, which are now seeing high vacancies, averaging 19% while an additional 101,000 sqm of new supply is planned for completion this year.
 
Companies focus more on workplace efficiency
 
Whilst most corporations are in a stronger financial position that allows them to concentrate more on growth and not only on cost control, they continue to make any real estate move very cautiously.
 
“With unstable political conditions and some threats from the rising oil prices and interest rates, companies remain uncertain about the future size of their business,” said Ms. Yupa. “Around 70-80% of business expansions in which we involved in the last quarter showed that companies have put a strong emphasis on efficiency, providing a smaller workspace for their staff. This has partly contributed to a slower growth of demand for office space,” she added.
 
Supporting Ms. Yupa’s view, Mr. Michael Tang, Head of Project and Development Services at Jones Lang LaSalle, said “Based on a number of office fitout projects that we have recently managed, more companies tend to maximize the use of their office space, requiring less work space. For example, most companies with 100 employees typically require 1,400 sqm of office space. But some of our clients asked us to help design a 20 - 30% smaller office to accommodate the same number of staff.”
 
“With a good real estate strategy, companies can maximize space efficiency to accommodate more staff. First and foremost, the strategy starts from the beginning where they need to evaluate the way the current office environment is and will be used.  There are many methods to achieve a more efficient workspace environment such as reducing enclosed private offices, centralizing meeting rooms and areas, utilizing of outside storage, introducing a phone booth room, and having a mobile workplace (hot desk),” Mr. Tang explained.

Outlook
 
High vacancies will continue to put pressure on office rentals in the remainder of 2011. However, Jones Lang LaSalle does not expect a significant drop in rents as the current rental level is already very low. In addition, the economic recovery witnessed in 2010 is expected to continue, with the 2011 GDP growth forecasts ranging between 3.5% and 4%. Part of this growth should lead to a pick-up in private investment, which typically correlates with new office demand.