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News Release


Bangkok Office Market Resilient

Impact of ongoing anti-government protests in Thailand on the Bangkok office market has been limited

Due to the impact of ongoing anti-government protests in Bangkok, Thailand has cut GDP growth forecast to 3% this year, down from the scaled-down 3.7% seen in September. Whilst demand in the Bangkok office market is expected feel the impact of the country's economic slowdown, the market has remained resilient so far.

Leasing activity in the Bangkok office market was buoyant over the first three quarters of this year and was driven mainly by relocations, with many companies also taking an opportunity to expand.  Some of the major leasing transactions (over 2,000 square metres) reported in the Bangkok office market this year include relocations of the Thailand Institute of Justice (2,400 square metres) to GPF Witthayu, UOB Asset Management to Asia Centre, Jubilee (2,055 square metres) to Bangkok City Tower and Oishi Group (3,000 square metres) to Park Ventures. The only large expansion transaction recorded so far this year was by Fitness First, which secured 2,596 square metres of space at Sathorn Square for its new branch.

All of these large transactions were in Grade A office buildings in Central Bangkok. However, the window of opportunity for companies to acquire large Grade A space in the area is closing.

While most prime office buildings in Central Bangkok are filling up, no new Grade A office space is expected to enter the Central Bangkok market until late 2014 when Bhiraj Tower, a 47,400-square-metre Prime Grade office building in the Central East area is planned for completion. In 2015, AIA Sathorn Tower (38,500 square metres) is the only Grade A office development that is planned for completion in the Central Bangkok.

Across Bangkok, the total stock of office supply across Bangkok is currently totals 8.16 million square metres with 3.02 million square metres located in Central Bangkok. Located on the fringe of Central Bangkok, the 9th Tower B is the only new office building that has been completed this year, adding 23,530 square metres of new space to the market.

With land prices in Central Bangkok continuing to rise, most of the new office supply pipeline is located in secondary locations, notably the Central North areas. The potential for new office development in these secondary sub-markets is promising given the rapidly increasing popularity of Bangkok's mass transit systems.  Prime Grade office developments scheduled to complete in these sub-markets by the end of 2014 include the AIA Capital Centre (59,000 square metres) and G Land Tower Grand Rama IX (65,000 square metres), plus owner-occupied SET Capital Market Centre (60,000 square metres)

The combination of steadily increasing demand and limited new supply has pushed office vacancy rates across the city to decline to 11% at present, having come off the previous peak of 17.5% in 2009.

In response to lower vacancies, rents are currently exhibiting an upward trend after bottoming out in 2011 and have continued to rise over the past seven quarters. In light of the limited supply expected over the short to medium term, average gross rents across Bangkok increased to THB 456 (approx. USD14.4) per square metre per month at the end of Q3 2013, a 28.5% increase from the last bottom of THB 355 (approx. USD11.2) per square metre per month at the end of 2011.

Prime Grade A office rents in Central Bangkok rose to THB 738 (approx.USD23.4) per square metre per month at the end of Q3 2013 from THB 648 (approx.USD20.5) per square metre per month at the end of 2011, with a few buildings in the area asking for higher rents ranging between THB 850 (approx.USD27) and THB 1,000 (approx.USD31.7) per square metre per month.

Rents are expected to continue rising due to the lack of a shortage of new office supply over the short term.

In addition, landlords are likely to become less comprising with leasing terms. Aside from higher asking rents, incentives that were widely offered during the market downturn, such as rent-free periods, have shrunk.

With limited Grade A supply and rising rents and in Central Bangkok, more companies are re-examining their need to be located in the prime buildings and are now looking at alternative locations outside Central Bangkok where rents are lower.

For example, tenants can secure space in Grade A office buildings located outside the CBD of Central Bangkok at more affordable rents ranging between THB 550 and THB 750 per square metre per month, and secondary grade buildings are asking rentals ranging between THB 350 and THB 500 per square metre per month.

However, relocating from one office to another is neither an easy nor inexpensive exercise. As a result, many companies are reluctant to move, even though they may be able to secure better lease terms if they decide to move to another building.

In a soft market, landlords may be happy to cover part of the expenditures incurred when a new tenant is relocating to their building, typically in the form of discounts on rents or rent-free periods. However in present conditions in the Bangkok office market, landlords are becoming less generous.

As a result, many companies whose offices have been fitted out for less than six years prefer staying where they are and opt to undertake an office reconfiguration if expansion is not technically or financially feasible.