Limited office space in Bangkok

Posted by Hipflat 28 Feb 2017

Bangkok's office sector performed well last year, but limited supply ahead is causing vacancy rates to continue to fall.

According to research from real estate firm CBRE, despite weak economic growth, the Bangkok office property market performed well in 2016. Although office supply in the city grew by 140,000 sqm, vacancy rates fell to 8 percent and rents rose by between 5 percent and 9 percent, depending on location and grade.

New office supply under construction is limited, according to CBRE, with only 225,000 sqm due to be completed in 2017, and 167,000 sqm in 2018. This has led to tenants signing leases in new buildings even before construction has been completed, according to the firm.

Bangkok has enjoyed a surplus of office space supply for many years, meaning that tenants had a wide variety of space in completed buildings and did not need to commit to buildings while they were still under construction.

The Bangkok office vacancy rate dropped to below 10 percent for the first time in 2013. The vacancy rate has continued to fall, limiting tenant's choices in existing buildings, particularly, the best quality central business district (CBD) developments with direct access to mass transit.

The choice of available space for large users in completed buildings is even more limited.

Currently there is no completed CBD Grade 'A' office building with more than 5,000 sqm on consecutive floors. This means that tenants have to sign leases for buildings which are still under construction in order to secure offices that match their requirements.

"CBRE has fully let SC Tower, a new 11,000 sqm development on Phaholyothin Road prior to its completion. Previously, CBRE had leased 100 percent of M Tower on Sukhumvit Road more than a year before completion, and 60 percent of FYI Center on Rama IV Road before it was completed last year," said Nithipat Tongpun, Executive Director , Head of CBRE's Office Advisory and Transaction Team.

This trend is likely to continue with tenants already committing to Gaysorn Tower, the only new Grade 'A' building that will be completed in the CBD during 2017.

CBRE noted that leasing a building under construction is more complicated for tenants. In a completed building, a tenant can see what they are going to get and there are no risks of a time delay.

"In a building under construction, a tenant needs to understand the floor plans and specifications because they cannot see the finished product. They need to have confidence the landlord can deliver the building according to the designed specifications, and more importantly, can complete on schedule so the tenant can fit out and move in with enough time to reinstate their existing premises before the lease on the current premises expires," added Nithipat.

CBRE Research anticipates the tight office supply situation will continue in 2018 and 2019.

The Bangkok office supply situation from 2020 onwards will depend on how many developers start construction on the new office projects this year.

This story was written by Andrew Batt, Head of Content at Hipflat,com. Contact him with your own news, views and comments at [email protected]