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News Release

Bangkok

More companies keen to purchase office space

But the lack of supply is a challenge


With the office rental growth continuing and showing no sign of stabilising, several companies in Bangkok are now considering an option to buy office space in place of renting. Nevertheless, the lack of suitable office space offered for sale is the biggest challenge these companies are facing, according to property consultancy JLL.

 

Yupa Sathienpabayut, Director of Office Leasing at JLL, says "Generally, companies prefer a rental option that offers more flexibility than ownership. As office lease agreements in Bangkok are typically on a 3-year term with an option for renewal, tenants have a flexibility to move whenever they want with less difficulty than if they own the premises. This flexibility is especially essential to companies that need to react quickly to changes in employment, technology, business and market conditions, any of which can have an impact on their office requirements."

 

"As office rents in Bangkok have escalated for seven consecutive years and continued to trend upward, more companies are now looking for an opportunity to acquire strata office space for private ownership," says Ms. Yupa 

 

"The top factor encouraging companies to buy office space is the better security of tenure that helps protect against rental escalation, particularly when the office market is on the upturn of the market cycle," Ms. Yupa explains.

 

Apart from a better control over occupancy costs in the long term, an expectation of the potential for real estate value appreciation is another major motivating factor. Companies considering a purchase option expect benefit from selling the property at a higher value at the end of the desired term of occupation. "Such an expectation sounds sensible as capital values of office assets are likely to grow further in line with positive outlook for the Bangkok office market that will continue to enjoy low vacancy and higher rents in a foreseeable future," Ms. Yupa comments.

 

Observations by JLL show that most of the companies considering the purchase option are looking for strata office units sized between 400 and 2,000 square metres in well-located buildings with a decent quality. However, office supply that is available for sale and meets the criteria is scarce.

 

There are several strata office buildings that contain individually owned units (also known as office condominiums). Some examples include Lake Rajada Office Complex, CTI Tower, Sathorn Thani and S.P. Tower.

 

All of these buildings were developed between the 1980s and the 1990s when strata office development was financially viable due to availability and affordability of land at that time. Purchasers include companies acquiring the unit for own use and individual investors who bought the unit and put it up for rent. Some of these buildings are co-owned by the developers who hold ownership of some space for own use or offer the space for rent.

 

While there has been no new strata office development launched in the Bangkok since the 1997 Asian Financial Crisis, the currently strong performance of the Bangkok office market does not encourage co-owners in the existing strata office buildings to sell their units, making it challenging for companies looking for an opportunity to buy office space at present.

 

"Strata office buildings that are well located and maintained have continued to enjoy strong leasing demand and thus co-owners in these buildings are not keen to sell their assets. Having said that, there are a handful of strata office units offered for sale but some of them have failed to find buyers due to their poor condition caused by the lack of proper property management, inferior location or unrealistic pricing," says Ms. Yupa.

 

There are a few other ownership options that the corporate occupiers can consider. For example, there are a number of smaller stand-alone office buildings that are available for sale. While these buildings may have inferior locations, they allow the owners to have a truly full control over their real estate which is not limited the long-term occupancy cost - the property could be refurbished to fit their specific business and operational needs.

 

"After all, any real estate option has its own pros and cons. Companies must weigh advantages and disadvantages of each option against their long-term business goal, based on adequate, accurate information about the specific property they want to invest in and the Bangkok office market," Ms. Yupa concludes.