Bullish outlook for Bangkok office market in 2019

New supply coming on stream this year is unlikely to have significant impact on market conditions

January 30, 2019

The office market continued to outperform other key property sectors in Bangkok in 2018, with demand outstripping new supply. Despite a significant amount of new supply scheduled for completion in 2019, prospects in the Bangkok office market remain promising, according to property consultancy JLL.

Data released by JLL's Thailand Property Intelligence Centre indicates that last year, the Bangkok office market enjoyed strong take-up of over 200,000 square metres, outstripping 158,700 square metres of new supply that entered the market over the same period. While the total office stock across the city reached 9 million square metres last year, the market-wide average vacancy rate stayed low at 9 percent.

In addition, tight supply and strong demand allowed the average rent to rise further by 5 percent to THB 682 per square metre per month, with most of the prime office buildings in central business areas achieving higher rents at above THB 1,000 square metre per month.

An additional 297,000 square metres of new office space is planned for completion this year.  However, JLL does not expect this significant amount of new supply to change conditions in the Bangkok office market.

Mrs. Suphin Mechuchep, Managing Director at JLL, says: "Growth of corporate demand for office space is likely to continue on the back of Thailand's positive economic outlook. Based on a recent forecast by the World Bank, the Thai economy is likely to grow by 3.8 percent this year, despite political uncertainty and a global economic slowdown."

"In addition, office developments whose construction is scheduled for completion this year have enjoyed strong pre-commitment rates between 80 and 100 percent," says Mrs. Suphin.

Key trends to watch in Bangkok office market in 2019

Leasehold, a win-win strategy

As suitable freehold sites for future commercial development in Bangkok have become increasingly scarce, more developers have keen demand for leasehold land for their new office development projects.

"Securing leasehold land in prime locations could be a good strategy for coping with the lack of freehold sites, while offering strong investment returns. A developer securing a prime leasehold site on a 30–50 year lease term for a new Grade A office development project in Bangkok today could expect 8 to 10 percent of returns on investment," says Mrs. Suphin.

"A number of prime sites in Bangkok have strong potential for redevelopment. While some owners of these sites do not want to sell their assets or develop a property project on own, we expect more of them to consider long lease as an option to enhance an income stream from their assets on a long term," Mrs. Suphin adds.

Co-working boom continues

Supply of co-working space in Bangkok has seen a rapid growth. International and regional co-working operators opened new facilities last year, totalling more than 23,000 square metres of space across the city. The boom is continuing into 2019, with some of these operators having already secured, as of this writing, more than 30,000 square metres of office space for their new facilities scheduled for opening this year.

Businesses are increasingly using shared workspaces as a way to foster innovation among employees and win the war for talent. This renewed focus on building human experiences has led to an uptick in co-working.

With rising demand, some office building owners may start investing in co-working.

Mrs. Suphin says: "It will not be surprising if some building owners without co-working know-how and experience form joint ventures with co-working providers who want to speed up market entry and reduce risk," she adds.

Growing concern over future office supply

An additional 1.47 million square metres of new office space is planned for completion in Bangkok between 2019 and 2023. In 2022 alone, more than 400,000 square metres of new space will be added to the Bangkok office market.

"Since most of the new office development projects that are in the pipeline will be of very high quality, older office buildings are likely to be most affected when construction of these projects completes. To maintain competitiveness, some of these older buildings may be renovated, and others may be replaced, if feasible," says Mrs. Suphin.

The considerable amount of future supply has also made some developers less confident to develop new office projects, particularly in the current environment where prime sites for new development are hard to secure.

"Windows of opportunity remain open for developers who understand their target customers and deliver products that suit their needs," says Mrs. Suphin.

"Not every company needs an office in a prime building. While some occupiers are more sensitive about occupancy costs, others focus on office buildings with close proximity to their customers or their business peers," she adds.

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of over 91,000 as of March 31, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.

About JLL Thailand

The firm’s operation in Thailand began in 1990 and today is the country’s largest international property service provider with 1,600 employees and more than five million square metres of property and corporate facilities managed. In Euromoney Real Estate Survey 2018, JLL was voted as Thailand’s number one overall real estate advisor for the 8th consecutive year and also won top votes for agency/letting, research and valuation in the same survey. The firm was also named Thailand’s five-star winner in the commercial property consultancy and commercial real estate agency categories at the International Property Awards Asia Pacific 2019/2020. For more information, visit jll.co.th.

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