Skip Ribbon Commands
Skip to main content

News Release

Bangkok office market on a road to recovery

Grade A rents set to pick up


Bangkok - Limited new supply and a rebounding demand are supporting the Bangkok office market recovery. The Grade A segment in the central business district (CBD) will lead the recovery as no new supply is planned for completion over the next two years, according to Jones Lang LaSalle, a professional services firm specialising in real estate.
 
Mrs. Suphin Mechuchep, Managing Director of Jones Lang LaSalle, said “After several years downturn, the Bangkok office market is now set to recover. The recovery will be driven by limited new future supply coming on stream and demand that continues to expand.”
 
“In fact, the recovery process could have begun faster if demand had not been confined by political and economic uncertainties over the past 3-4 years,” said Mrs. Suphin. “Though risk factors remain, whether they be political uncertainty or potential impact of the escalating sovereign debt crisis in the Eurozone, very limited new supply in the office market should ensure an ongoing recovery, even if demand expands at a slower pace due to those risk factors,” she added.
 
Grade A leads recovery
 
The latest study by Jones Lang LaSalle shows that there are currently 8.3 million sqm of office space in Bangkok with approximately 15% remaining vacant. Out of the total, 1.36 million sqm are Grade A office space located in the CBD with vacancy rate at under 22%.
 
The higher vacancy level in the Grade A market in the CBD is due to the higher concentration of new supply in this submarket over the past recent years while new supply has been slow to fill up due to the soft demand conditions.
 
Demand picking up
 
Findings from Jones Lang LaSalle’s preliminary year-end study reveals that net absorption of office space in Bangkok reached over 175,000 sqm in 2011, a level not seen since 2006.
 
In 2011, Jones Lang LaSalle concluded leasing transactions (including new leases and lease renewals) on behalf of landlords and tenants with combined area of 120,000 sqm. In line with the overall market, over 50,000 sqm of this space were additional space taken up by existing companies expanding business and new business setups, compared to 41,000 sqm in 2010.
 
Mr. Dan Tantisunthorn, Head of Research at Jones Lang LaSalle, said “As the Thai economy has moved beyond the domestic political and global financial crises, annual net absorption in the Bangkok office market has been returning towards levels achieved during the earlier part of the last decade.”
 
“Though GPD growth in Thailand has been revised down from 4-4.5% earlier in 2011 to around 2-2.5% after the flooding, most forecasts call for stronger economic growth in 2012 and 2013, including a sharp pickup in investment. Stronger investment typically translates to robust demand for office space, which would accelerate the Bangkok office market recovery. This, coupled with no new Grade A office developments planned for completion until at least 2013, will allow the vacancy to consistently decline from this point forward,” said Mr. Dan.
 
Rents set to rise
 
According to Jones Lang LaSalle’s study, Bangkok office rents stayed relatively stable in 2011 after declining for five years from the last peak in 2006. The average rental for Grade A office space in Central Business District (CBD) now stands at THB 610/sqm/month.
 
Ms. Yupa Sathienpabayut, Head of Office Agency at Jones Lang LaSalle, said “We believe that Bangkok office rents have now reached a bottom as reflected by the growing resistance of landlords to reduce rents further. More landlords are now unwilling to offer discounts on rents due to growing awareness to the lack of new supply coming on stream over the next few years.  Some of them have already started asking for higher rents”.
 
As further evidence of the office market moving in favor of landlords, fewer incentives are offered. Rent-free periods are being shortened, and in some cases being altogether eliminated. This is in contrast to 2008-2011 when rent free periods of 3-6 months were commonly offered to new tenants.
 
“While there have not been any new projects officially launched as of present, with the exception of a few owner-occupied projects, any new developments will take at least three years to complete. As a result, vacancies will decline and rents are likely to rise over the next five years,” said Ms. Yupa.