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Bangkok

Bangkok’s office rents reach new high despite slower demand in first half of 2014

Rents likely to rise further as vacancy declines


Following a series of political tensions and after robust leasing activity in 2013, the Bangkok office market saw a slowdown in demand in the first half of 2014. However, rents continued to rise and reached a new high, according to JLL, a professional services firm specializing in real estate.

Mrs. Suphin Mechuchep, Managing Director of JLL, said “Political tensions that Thailand experienced between late 2013 and May 2014 dampened economic and business sentiments over the first half of 2014. However, fundamentals in most of the property sectors in Bangkok have remained strong with a generally fair balance of demand and supply, helping prevent market crashes.”

“The Bangkok office sector is a prime example. The market has fared better than expected so far, with demand continuing to grow, though at a slower pace compared to the same period in 2013, and low vacancies still allowing for room for rental growth,” she added.

The latest Bangkok Property Market Outlook report released by JLL’s Thailand Property Intelligence Centre (TPIC) revealed that net absorption of office space in Bangkok declined from 87,600 square metres recorded in the first half of 2013 to 60,000 square metres in the first half of 2014. ​

Office-Absorption-1H14.jpgDespite softer demand, average market-wide gross rents registered a 2.8% increase during the first six months of 2014, and a 17.3% increase from the previous peak in 2007. Rents in prime grade buildings in the Central Business Areas (CBA) saw a 1.2% increase in the first half of 2014, and a 9% increase from the previous peak in 2007.

Bangkok-Office-Rents-1H14.jpg

“Political uncertainty seen in the first half of 2014 softened business sentiment and consequently caused some companies to postpone leasing decisions. In addition, 2013 was a record year (post-1997 crisis) for the Bangkok office market in terms of annual rental growth and annual net absorption. The market also enjoyed extra demand from companies with expansion plans rushing to secure new space in 2013 in fear of rising rents and limited supply. All of these factors contributed to slower growth in demand in the Bangkok office market in the first half of this year,” said Ms Yupa Sathienpabayut, Director of Office Leasing at JLL.

Bangkok office market in the first half of 2014

According to JLL’s Thailand Property Intelligence Centre, Bangkok’s total office stock currently stands at 8.18 million square metres. The market-wide vacancy rate dropped to 9.7% at the end of June 2014, a record low level since JLL began tracking office vacancy in 1995. Prime grade buildings in the Central Business Areas (CBA) enjoyed a lower vacancy rate of 8.2%.

As at the end of June 2014, average monthly gross office rents reached THB 475 per square metre per month across Bangkok and THB 739 per square metre in prime grade buildings in the CBA, representing all-time highs. Some prime grade buildings are asking much higher rents ranging between THB 900 and THB 1,300 per square metre.

Outlook for the second half of 2014

There are three office development projects planned for completion in the second half of this year, including SJ Infinite 1 (formerly Equinox Phahol-Vibha) on a corner of the Phaholyothin-Vibhavadee intersection, AIA Capital Center at the MRT Thailand Cultural Centre station and Bhiraj Tower at the BTS Phrom Phong station, which will bring the total office supply to 8.31 million square metres by year end.  While these projects have healthy pre-commitment levels, their introduction into the market is expected to cause a short term increase in vacancy as the new space fills in.

“With a more stable and predictable political situation in recent months, business sentiments in Thailand have improved, which will likely stimulate demand for offices in Bangkok that was pent up in the first half of 2014.  This, coupled with tight supply, will allow office rents to rise further in the remainder of the year,” concludes Ms. Yupa.