During what some fear may only be a lull in sporadic civil unrest, a Bangkok commercial property services adviser gives tips that could ward off potential calamity.

Strong fears of more violence breaking out on Bangkok streets have led to many foreign companies identifying buildings farther away from the central business district to use in future emergencies, according to Nithipat Tongpun,executive director of CB Richard Ellis.

Although those working within the country realise that the situation is probably manageable, top executives at the overseas head offices of multinational and other foreign companies in Thailand are still disturbed by the images they saw of the violence in Bangkok in April and May.

“Many companies have asked us to prepare information on what is available in the northern part of the city and to the east,” said Mr Nithipat. He added that Thai companies generally are not on the hunt for backup space, partly because many local businesses own their own buildings, while smaller operations might work out of homes.

“For those who have called and those we’ve held discussions with, our advice is that they should quickly work this out now because if something happens they could then proceed swiftly.”

He said companies were mainly looking at office buildings along Chaeng Watthana Road in the northern zone and the Bang Na area in the east. They are not focusing on areas such as Ratchadaphisek Road that are seen to be a bit too close to the central area that was hit by violence in May.

“For example, if you had moved to Sukhumvit when the unrest broke out in Ratchaprasong, you might have had to move a second time,” said Mr Nithipat.

“I have seen equal demand for Bang Na and Chaeng Watthana,” said Mr Nithipat,and in fact some companies are looking to rent backup offices at both Chaeng Watthana and Bang Na as this would make it easy for staff who live in either of the two zones to get to work.

Buildings where companies are looking to rent backup offices do not necessarily have to be Grade A, but they do need to have full facilities and be convenient to reach close to train lines or the expressway.

Bang Na is near Suvarnabhumi Airport,but that doesn’t give it an edge over Chaeng Watthana because the focus is more on access for the ordinary worker.

Noting that computer file servers are the very heart of a business, Mr Nithipat said it was important for companies to make sure that the servers at their current office are able to function no matter what happens.

“The backup generators that most buildings have are for the common areas and not for tenants. Only some buildings have prepared generators specially for tenants, and this is good for those buildings. From now on tenants will be looking to see whether the building has a spare generator for them to rent in an emergency,” he said.

“Here at CB Richard Ellis [at All Seasons Place], when the troubles erupted our server was in this building but we couldn’t get in.So we moved to Bitec, and were able to reach our server from there. We were lucky power to this building wasn’t cut so we were able to use our server normally, but even if power had been cut, All Seasons Place has a separate backup generator for tenants.”

He said that only five or six buildings in the city have a spare generator for tenants,but some buildings are able to share extra power from the generators they have installed for their common areas with their tenants. In addition, big companies such as banks, financial firms and stock traders usually already own their own generators.

Mr Nithipat warned that companies that have two offices should make sure that the electricity supply to both doesn’t come from the same grid. There are several power grids in Bangkok and some overlap in the inner city.

“Careful thought has to be given to the main location. Some companies have rented space in two to three buildings within the same district or neighbouring ones and when something happens such as the recent unrest,they can’t do anything at all.”

Mr Nithipat said that landlords should ensure that there is a contact person on each floor to help companies and their staff get out of the building in case of dire trouble.Landlords should also make sure that there is a secure fence around the perimeter of the building to slow down protesters who might want to break in.

It is also imperative to have a single point of access, with guards in place to exchange cards with all visitors.

“Right nowmany buildings are installing turnstiles – that’s where you press the card to get in. I think this is very important and tenants are also seeing it to be important.”

Buildings that have three to four access points, some of which allow tenants and visitors to get to the lifts without passing guards, are clearly compromising security.

“Tenants and landlords have to know where the visitor is going. Tenants usually have a card, but we don’t know anything about visitors and we have to find out,” said Mr Nithipat.

“It is essential for tenants to look into this,because when it comes to terrorism, there will be ups and downs continuously from now on.”

He also advised landlords that in addition to ensuring that tenants have adequate power backup, they themselves also must have sufficient emergency support because they hold vital information about tenants which could be needed in certain situations.

The total office supply in Bangkok was 7,978,543 sqm., down 0.1% Q-o-Q and up 1.5% Y-o-Y (it should be noted that there was a reclassification of buildings and readjustment of total net lettable office areas to reflect current usage). No new supply was completed in this quarter.

As of Q1 2010, overall take-up in the Bangkok office market was 6,832,801 sqm., up 0.7% Q-o-Q and 1.2% Y-o-Y. The total occupancy rate also improved slightly from 85% to 85.6% in this quarter.

The vacancy rate was 14.4%, a fall from 14.9% at the end of 2009.

In Q1 2010, the overall rents dropped for the fifth consecutive quarter, since the beginning of 2009. Grade A offices in the CBD area faced a 0.3% Q-o-Q and 3.8% Y-o-Y drop in rents, down to THB 683/sqm. in this quarter from THB 685/sqm. in Q4 2009.

In terms of net take-up, Grade A Non-CBD posted the highest level of net new take up with 22,027 sqm., mainly due to the movement of the Energy Complex’s tenants. Total net take-up stood at 17,481 sqm., which was up 17.1% Q-o-Q and 103.1% Y-o-Y.

In general, demand for office space remained weak during Q1 2010. Demand, particularly from multinational corporations, is likely to remain weak throughout the year.

Two office buildings are scheduled to complete this year which are Sathorn Square (73,584 sqm.) and Sivatel (5,880 sqm.) in 2010. In 2011, Park Ventures (28,000 sqm.) and KPI Head Office (11,010 sqm.) will be completed. All of these buildings are located in the CBD area.

Supply will continue to be limited in the coming years with only two Grade A CBD office buildings—Sathorn Square and Park Ventures—due to be completed. Due to the lack of any other new supply, these projects are expected to be able to attract tenants when demand recovers. In the current climate however office rentals are expected to stay flat over the next six months or may fall further as landlords compete to retain tenants and fill vacant space.

This is an extract from Bangkok Office MarketView Q1 2010, click to download the full Bangkok office report.

Visit CBRE Research for information on Bangkok Office Market Update

2010 has begun with a more positive market sentiment. The improving economic outlook globally and perception of Thailand’s political situation, together with low market prices compared to other mature property markets, have had a positive impact on consumer confidence in property investment in Thailand.

Following the economic crisis, the supply of new office, retail and industrial space is at an all-time low. These sectors are expected to improve this year, in line with the global and local economic recovery.

Thailand’s residential market in 2009 was primarily driven by local demand. This year, CBRE believes that local demand will continue to be strong and that individual foreign property investors will start to return to the market. Thai condominium prices remain attractive compared to other cities in the region, such as Shanghai, Hong Kong and Singapore where prices have risen sharply in the last six months.

Average Price of Luxury Residential Units in the Region (THB per sq.m.)

However, there are continuing concerns about Thailand’s political stability and the strength of the global economy.  If Thailand’s economy and politics are stable in 2010, the residential sector will see consistent positive growth.

Government Policy

The Government stimulus package will expire in March 2010 and it remains uncertain whether it will be extended.  CBRE believes the extension of this package will benefit buyers and developers of large condominium projects launched during the crisis which are due for completion and transfer within this year.

The initiative of this government to reform property and land taxation with a view to creating fairness sounds positive, but it will only be possible to determine the effect on the property market once the details of the proposed legislation have been finalised. “So long as the new tax legislation is on a fair basis and the tax rate not so excessively high as to discourage investment, CBRE sees this reform as beneficial for the market,“ Ms. Aliwassa Pathnadabutr, Managing Director of CBRE Thailand said. An additional measure that CBRE urges the government to consider is the extension of the long lease term from the current 30 years up to a maximum of 90 years. This will help improve the market mechanism and make large-scale commercial projects viable which would not be feasible if such developments were freehold due to the high land cost or if they were on a 30-year lease due to the limits on lease terms. The extension of the lease term will also have a direct benefit for resort destinations such as Phuket and Samui where the property markets are primarily driven by foreign demand.

Looking at 2010 and beyond, environmental issues are a key consideration for all industries including the property market. There will be more restrictions which may increase the cost for developers. The Environmental Impact Assessment (EIA) process is one of the key concerns and risks for developers as there are uncertainties in the details and timing required to obtain such a permit. This is one of the factors which are likely to delay the emergence of new supply.

Any additional incentives that would attract foreign direct investment in both manufacturing and the service industries would be welcomed, in order to enable Thailand to compete with rival destinations.

Office : The Market Should Improve in 2010

Bright future due to limited new supply

In 2010, there will be very limited new supply in the office sector.  Only 78,380 sq.m. are due to be completed, including Sathorn Square (72,500 sq.m.) and Sivatel Wireless Road (5,880 sq.m.). CBRE sees the limited increase in new supply as a positive indicator for the office market because any increase in take-up will reduce vacancy rates and lead to rental increases. At the end of 2009 the vacancy rate stood at 12%.

Even though net demand in 2009 dropped by more than 50 % to only 52,000 sq.m., average grade A CBD office rents fell by 7.26% to THB 690 per sq.m while grade B CBD office rents fell by 12% to THB 509 per sq.m.  This is considerably better than in other markets.  Rents fell by 52.6% in Singapore and 49.9% in Hong Kong in 2009.

Average Grade A CBD Office Rents in the Region (THB per sq.m.)

Following the recovery of the global economic, CBRE believes that companies will be less cost conscious and that 2010 will be a good time to take advantage of the low rents to relocate to newer buildings.

Sathorn Square – the only new grade A office building to be completed in 2010.

Condominium : The Most Exciting and the Most Competitive

Supply Outlook : More competitive market in 2010

The total supply of downtown condominiums increased to 61,522 units by the end of Q3 2009, up 14% year-on-year. In total, there are 17,664 units under construction in downtown Bangkok, of which 78% of which have been reportedly sold, leaving 3,879 units being marketed (completed and under construction).

In 2009, there were 3,912 units in 15 projects launched in the downtown area, with the majority being one-bedroom unit types. In 2010 CBRE expects a much more competitive market, with an increasing number of project launches as there is pent-up supply from developers who have delayed their projects since the onset of the economic crisis in late 2008 and also new supply from large developers who acquire plots of land for new developments.

Newly Launched Condominium Projects* Broken Down by Unit Type

Demand Outlook : Demand continues to be strong

CBRE sees a growing demand for condominiums driven primarily by a change in lifestyle which has led to the need to own a first or second home in the CBD or near mass transit routes to reduce the need to commute.  From an investment perspective, investors also increasingly recognise condominium purchases as an appreciating long-term investment asset. In the past, there were few Thai investors in the market. However, with lower interest rates and proven returns, investing in condominiums has become a popular investment choice for many Thais. It is also considered a safe and secure investment compared to the equities market which is much more volatile.

New Trends : Good locations, small furnished units with affordable prices

From the development side, developers need to ensure they are ahead of the game in trying to predict future location trends. The danger is that a popular location can quickly become saturated with new supply. The key to success is either to be the first to launch in an upcoming location, or to find a location with high barriers to entry.

New supply especially for the middle income market will focus on smaller units at affordable prices. In a competitive market with experienced buyers, products must offer quality as well as innovative and functional design in order to be successful. The reliability and reputation of the developer is another key consideration for buyers.

Luxury and Super Luxury Segments :  Limited future supply

The luxury and super luxury condominium segment is expected to slowly recover and develop into a niche market. Prime downtown land is rarely available for sale and prices will remain high, CBRE, therefore, does not expect many new launches for luxury condominiums in prime downtown locations.

With a wave of new launches focusing on smaller one-bedroom units along mass transit routes with prices ranging from THB 3 to 8 million, the majority of unsold two to three-bedroom units priced at over THB 15 million and developed before the crisis should soon be absorbed.  There will then be a shortage of two-bedroom units in the luxury market especially in prime locations. Short-term investors will speculate on one-bedroom units whereas long-term investors will focus on two and three bedroom units which are in demand among expatriates in the rental market, while smaller units are driven by local demand. With a limited supply of newly launched larger units CBRE believes the existing supply of such grade-A units in prime locations will continue to appreciate in value.

2010 Pricing Trends : Completed prime condo prices on the rise

In terms of price movement, CBRE sees no significant increase in prices per sq.m for mid-market condominiums as the economic recovery is still underway with the prevailing political problems which continue to concern buyers. The best selling segment is priced at THB 50,000 – 80,000 per sq.m in mid-town locations or within 15 kilometres of the CBD. Prices in this segment are unlikely to increase as the purchasing power of the target market is limited.  The developers have to compete on cost control and pricing.

Prices for completed high-end and luxury downtown condominium have increased slightly by 5.6% from THB 117,875 per sq.m from Q4 2008 to THB 124,539 per sq.m in Q3 2009 and CBRE believes that the prices of completed buildings in prime locations will continue to rise in 2010.

Prices of the future supply of high-end and luxury downtown condominium in 2009 fell slightly by 6.3% from THB 142,133 per sq.m in Q4 2008 to THB 133,134 per sq.m in Q3, 2009 due to the slow market conditions. New launches in 2010 are likely to see an increase in price per sq.m due to the higher construction costs but, as unit sizes are smaller, total unit prices will be on par with current levels.

Retail : More Focus

Improvement expected following return of consumer confidence

In the first three quarters of 2009, the supply of retail space grew by 6.6% or 327,125 sq.m. Whilst occupancy was stable throughout the year, rents were flat and even fell in some cases during the earlier part of 2009. The fourth quarter showed signs of consumer confidence and spending returning.

The trend for new retail centres in Bangkok is evolving from one-stop mega shopping complexes to more focused community malls and medium-sized lifestyle and entertainment complexes such as Esplanade Rattanathibet.

The major players in the retail market are Central, The Mall, Siam Future and Major Cineplex.  Retail developments to note this year are Terminal 21 which is currently under construction and located in Sukhumvit at the Asoke junction, Central Rama 9 and Mega Bangna which will house Thailand’s first IKEA store.

Serviced Apartments : Highly Competitive

Occupancy rates are likely to be flat and downward pressure on rents

The serviced apartment sector, which partially depends on tourists and business travellers as well as expatriates working in Bangkok, has suffered from growing supply which led to an overall drop in occupancy and rates in 2009.

Total supply increased to 12,392 units, up by 6.84% year-on-year, with a further 610 units expected to be completed by 2010 and approximately 2,000 units by 2013. Occupancy rates remained at 75% in Q3 2009. Occupancy was partly protected by a number of long-term contracts which are less volatile than the daily rate market. Average rates, however, fell by about 20% year-on-year.

The biggest challenge faced by this sector is the volume of new supply targeting both long-stay expatriates and short-stay businessmen and tourists.

Serviced apartments compete against apartments and particularly small condominium units for rent in the long-stay market and the rapidly growing supply of hotels in the short-stay market. The influx of new supply of both serviced apartments and hotels will continue to exert a downward pressure on both rates and occupancy.

Expatriate Rental Apartments

The total supply of expatriate-standard rental apartments in Bangkok increased to around 11,151 units, up by 4.5% year-on-year

Occupancy remained high at 91%. CBRE has not seen a dramatic drop in the number of expatriates in 2009 but, since companies are trying to maintain or reduce costs, so CBRE does not expect any increase in housing allowances.

Multinational companies continue to be cautious on their expansion plans given that the global economy is yet to fully recover. Thailand’s political problems are also an added factor which has restrained business expansion plans in Thailand.

CBRE does not expect that there will be a significant increase in the number of expatriates in 2010. There will be increased competition from individual “buy-to-rent” condominium owners seeking to lease out units in recently completed developments.  There are about 620 apartment units under construction but there are also 17,664 condominium units under construction and CBRE expects that up to 50% of the new condominiums have been bought by purchasers who want to lease out their units on completion. This increase in supply combined with little or no growth in demand will dampen any potential for overall rental growth.

New well-designed condominium and apartment buildings will continue to perform better than older buildings that have not been refurbished or redecorated.

Bangkok office market rents have moved downwards. As of Q3 2009, the overall rents dropped for the third consecutive quarter, since the beginning of the year. Grade A offices in the CBD area faced a 0.9% Q-o-Q and 6.7% Y-o-Y drop in rents, down to THB 694/sqm in this quarter.

During Q3 2009, net new take-up posted positive figures in all segments (Grade A CBD and Non-CBD; and Grade B CBD and Non-CBD), Q2 had seen negative figures in a number of the grades. Total net take-up stood at 9,253 sqm, which was down 31.6% Q-o-Q and 43.7% Y-o-Y.

Although demand remained weak during Q3 2009, there was a 9,253 sqm growth in the total amount of occupied office space. Net take-up since the beginning of the year was 31,382 sqm.

The completion of the Energy Complex in Q4 will have a significant effect on other buildings in the Northern corridor, since PTT and its subsidiary companies will be relocating from other buildings in the Northern corridor to the Energy Complex when it is complete. This will lead to vacancy in these other buildings, with Northern corridor rents likely to be pushed down.

Apart from the Energy Complex, only three buildings will be completed in the next two years. These are Sathorn Square (73,584 sqm) and Sivatel (5,880 sqm) in 2010; and Park Ventures (28,000 sqm) in 2011.    

Outlook

Although demand remained weak during Q3 2009, there was a 9,253 sqm growth in the total amount of occupied office space. Net take-up since the beginning of

the year was 31,382 sqm.

The office sector has not seen a significant increase in supply; therefore, rents react rapidly to an increase in demand. With limited new supply in the coming years, any recovery in the economy may lead to an increase in demand for office space in Bangkok.  

 In the current climate however rents may fall further as landlords compete to retain tenants and occupy vacant space.Visit CBRE Research to download full report 

Bangkok – 2 December 2009 – London’s West End is again the world’s most expensive office market, according to CB Richard Ellis (CBRE) Global Research and Consulting’s semi-annual Global Office Rents survey. Tokyo’s Inner Central has slipped to second place, followed by that city’s Outer Central market. Hong Kong’s Central Business District (CBD) and Moscow are fourth and fifth respectively in the CBRE report, which tracks office occupancy costs in nearly 180 cities around the globe.

Office markets worldwide are experiencing declines in prime office occupancy costs. The year-over-year change in prime office occupancy costs of the 179 markets monitored revealed an average drop of 7.7% worldwide over the 12-month period ending September 30, 2009 (in local currency and on an un-weighted average basis).  The majority of markets – 131 markets in total – experienced a year-over-year decline including nearly 50 which saw rents tumble by double-digit percentage-points. 

Many of the world’s bellwether financial centers are at the top of the list of fastest changing markets, including Hong Kong Central CBD(-40.7%) and New York, Midtown(-29.7%) along with emerging markets such as Ho Chi Minh City(-45.4%) and Abu Dhabi(-38.6%).  Kiev led the world with the largest year-over-year decrease in office occupancy costs, falling 64.6% from year-ago levels.

“While there are signs that commercial real estate values are stabilizing in some markets in Asia and parts of London, underlying property fundamentals are still weak,” said Dr. Raymond Torto, CBRE’s Global Chief Economist. ”However the office market may be on the cusp of moving from intensive care to the stabilization stage – the first step to getting back to good health.”

Forty-one markets experienced positive growth.  Aberdeen, Scotland and Rio de Janeiro, Brazil both grew by more than 10% as not all markets have been as affected by the decline in global demand and demand for office space has proven resilient in some areas due to the local market dynamics.

Office occupancy costs measured in U.S. dollars are affected by changes in the dollar’s value versus the respective local currency. Hence, office occupancy costs when converted into U.S. dollars are driven by both the local market dynamics of supply and demand, as well as currency changes.

 Asia-Pacific

Tokyo (Inner Central) was Asia’s most expensive market with an occupancy cost of THB 5,130 per square meter per month (US$172 per square foot per annum). while that city’s Outer Circle market was second with occupancy costs of THB 4,157 per square meter per month (US$139 square foot per annum). Hong Kong (CBD) follows with occupancy costs of THB 4,113 per square meter per month (US$138 square foot per annum). Mumbai and New Delhi were the other two Asia-Pacific markets in the world’s top 10 most expensive cities roster.  Bangkok, one of the cheapest market, was ranked at 151^st out of 179 markets surveyed with occupancy costs of THB 694 per square meter per month (US$23 square foot per annum), followed by Jakarta ranked at 177^th with the lowest occupancy costs in Asia at THB 481 per square meter per month (US$16 square foot per annum)

For the Asia Pacific region, the office markets that experienced the largest decreases include Singapore (-53.4%), Ho Chi Minh City (-45.4%), as well Hong Kong which declined over 30% in the past year.  The Asia-Pacific region had 17 cities with double-digit declines in office occupancy costs. 

Europe 

London’s West End was the world’s most expensive office market at THB 5,525 per square meter per month (US$185 square foot per annum). Moscow was second in Europe with occupancy costs at THB 3,932 per square meter per month (US$132 square foot per annum). Dubai, Paris and the City of London all were in the top ten most expensive markets.  

Kiev led the world with the largest year-over-year decrease in office occupancy costs, falling 64.6% from year-ago levels. Other markets in Europe that are experiencing the largest decreases include Moscow, Oslo, Warsaw and Dublin.  The EMEA region had 17 cities with double-digit declines in office occupancy costs.

Americas 

Two cities in Brazil — Rio de Janeiro and São Paolo — have supplanted New York’s Midtown as the most expensive office location in the Americas.  Rio de Janeiro’s occupancy costs of THB 2,600 per square meter per month (US$87 square foot per annum), was good for twelfth place on the global list, while  São Paulo came in at 16th globally with occupancy averaging THB 2,451 per square meter per month (US$82 square foot per annum). New York’s Midtown’s market has dropped to third in the Americas and 24th globally with occupancy costs of THB 2,062 per square meter per month (US$69 square foot per annum).

Boston’s CBD led the Americas, with a decline of 33.9% year-over-year, followed by New York’s Downtown and Midtown markets.  Fifteen markets in North America posted double-digit declines. Meanwhile, Latin America held up stronger than the rest of the world, with only six cities registering a decline, including a 6.3% decrease in Buenos Aires, Argentina.

This move is in a response to demand particularly in the office market. We believe that more multinational tenants are going to require that the buildings they occupy be environmentally certified. At the present time there are only a limited number of environmentally certified buildings in Asia but once a number of buildings become certified in each market they will have a competitive edge over non certified buildings.

LEED (Leadership in Energy and Environmental Design) is the US certification developed by the US Green Building Certification Institute under the US Green Building Council. Australia has Green Star, Singapore has Green Mark and the UK BREEAM.

In the absence of a Thai certification standard some Thai developers are using other countries’ standards.

Millennium Residence a condominium under construction in Bangkok due for completion by the end of this year has recently received the Singapore B.C.A. (Building Construction Authority) Green Mark Gold Award the first such award in Thailand.

Millenium Residence

The Energy complex a 119,000 square metre office development in Bangkok’s northern corridor is applying for LEED certification as is the Park Ventures office building and hotel development on the corner of Wireless and Ploenchit road.

Energy Complex

The Park Ventures

We believe that once there is a critical mass of office developments with Green Certification in Asia then it will become a significant factor in a tenant’s decision making process.

In Thailand we believe that the process will be demand lead rather than legislated by the authorities. Legislation in terms of building standards will then catch up with demand.

This has happened in the past. Before 1992 high rise buildings in Thailand did not require sprinklers as part of their fire suppression systems. Multi-national tenants however demanded that buildings have sprinklers and so developers constructed office buildings with sprinklers before they were legally required to do so because of tenant demand.

This is likely to happen with environmental certification where tenants will start to insist on a building meeting a certain environmental standard.

This will start in the office sector but multi-national companies may also start to require environmental certification for other properties that they use such as hotels.

We are advising any developer considering constructing an office building in Thailand today whose target market is multi-national or large Thai corporations to seriously consider obtaining environmental certification.

The next step will be the retrofitting of existing buildings to obtain environmental certification. This is already happening in other countries.

CB Richard Ellis is the sole leasing agent for the Iconic Empire State building in New York. The owner is currently undertaking a retrofit programme for the building with the aim of securing LEED gold certification by 2013 and reducing energy costs by 38%.

Empire State Building

The 102 storey Empire State building was completed in 1931.

Sadly since the 2004 opening of the MRTA underground line, the new line has been a 2.2 kilometre extension of the BTS which was completed this year from Taksin Bridge to Wong Wian Yai. The structures of the BTS extensions from both On-Nuch to Soi Bearing and Wong Wian Yai to Bang Wah have been completed but delays in procurement of signaling and electrical equipment mean that the Soi Bearing extension will not now open until late 2011, according to a September 19th article in the Bangkok Post quoting deputy Bangkok Governor, Teerachon Manomaipibul. We don’t know the date when the Bang Wah extension will open.

The good news is that the 28.5 km. airport link should be completed and ready for trial operations by December 2009. The impact on property development will not necessarily be the link to the airport but the role of the line as a mass transit system with six stations starting from the Payathai BTS skytrain station.
Express trains will travel directly from the Makasan City Air Terminal, non-stop to Suvannabhumi Airport.

There is a technicolour range of plans for 12 new lines with a route length of 487 kilometres.These include the dark red line, purple line, orange line, light green line extension, blue line extension, light red line. To date there have been announcements about contracts with builders but construction does not appear to have started on any of the lines. Apart from the skytrain extensions and the airport link it will probably be 5 years before we see new trains in Bangkok.

End users whether they be home purchasers or office tenants are only going to make decisions when they know when mass transit lines will open timing their move to be on or after the opening date of a line.
Real demand for property next to mass transit stations only materializes when the buyers or tenants are confident about when the route will open. The effect of new lines significantly increases the attractiveness of locations by reducing a 2 hour or more commute by car to 40 minute, train ride.

This creates demand for housing in areas that were previously considered inaccessible and means that that areas previously considered unsuitable for office development now become attractive. The opening of new mass transit systems has proven to be a major catalyst for property development.

Unfortunately delays in starting construction on new schemes means we will have to wait some time from for the next catalytic effect of new mass transit systems on property development in Bangkok.

There was a limited amount of new letting but only a few cases of downsizing. For multinational companies, which make up the majority of demand for office premises, restrictions on any capital spending meant that they were unlikely to move. The capital costs of relocation which include about THB 2,000/m2 to reinstate existing premises and new fitting-out costs of about THB 15,000/m2 mean that it is often not worth relocating to get a slightly cheaper rental unless the size requirement has been significantly reduced. The completion of the Energy Complex in the second half of 2009 will have a significant effect on other buildings in the northern corridor.  The Energy Complex has been fully let to PTT and its subsidiaries who will be relocating from other buildings in the northern corridor. Apart from the Energy Complex, only three buildings will be completed in the next three years.  Sathorn Square (73,584 m2) in 2010, Sivatel (5,880 m2) in 2010 and Park Ventures (28,000 m2) in 2011. Any recovery in the economy will lead to an increase in demand and, with limited new supply, rents will rise.

Bangkok Office Supply, Demand and Vacancy
We do not expect that developers will start construction on new office projects until rents increase. The remaining future development in 2009 is the Energy Complex, which is located in the Non-CBD area and will increase the total Bangkok office space by 119,000 m2.  This development is already 100% committed and will be occupied by subsidiaries of the PTT Group and the Department of Energy.  The project is located on Vibhavadi-Rangsit Road and is expected to be completed in the second half of 2009. Sathorn Square and Sivatel are both scheduled to be completed in the mid half of 2010. The total lettable area for both projects combined is 79,464 m2. In 2011, Park Ventures is projected to be completed. The project is a mixed-use project which will have an estimated 28,000 m2 of office space and will also have a hotel.  The completion of Park Ventures will bring the total office space in Bangkok to 8,090,899 m2 in 2011.

Occupancy
The occupancy rate for Bangkok office market increased slightly to 86.0% from 85.8% in Q1 2009. The higher occupancy rate in Chamchuri Square has been the source of improvement for the Bangkok offices occupancy rate. The opening of Energy Complex could increase the vacancy rate when it first opens, however, we are expecting the buildings to be fully-occupied by the first half of 2010. The occupancy rate in the CBD area has improved to 86.7% from 85.5% in the last quarter. In contrast, the occupancy rate of Non-CBD areas dropped from 86.1% to 85.3 for this quarter.

Supply
As of Q2 2009, the total office supply remained at 7,864,435 m2, a 3.9% increase y-o-y with no increase in the quarter. The majority of the office supply in Bangkok was Grade B, representing 77.3% of total supply in the market. Grade A office supply was 1,788,471 m2, while Grade B office supply stood at 6,075,964 m2. Grade A office supply will grow with the completion of the 119,000 m2 Energy Complex, the only new supply to be added in any grade, during the second half of the year.

Net take-up during this quarter improved compared to Q1 2009, at 13,524 m2.  This was an increase of 57.1% q-o-q but a fall of 63.5% y-o-y.  There was 1,100,623 m2 of vacant space. The source of growth in take-up during Q2 2009 was largely driven by DTAC which completed its move to Chamchuri Square occupying 61,000 m2 and vacating 35,000 m2. For the Grade A space in the Non-CBD area, we expect to see growth when companies move into the Energy Complex by the end of 2009 and in early 2010.

There were some companies which downsized but, in many cases in Bangkok, it is cheaper to remain in existing premises because of the high cost of relocation.

As of Q2 2009, the overall office market rents were moving downwards.  Grade B CBD rents recorded the highest fall, from THB 538/m2 in Q1 2009 to THB 514/m2, falling 4.5% q-o-q and 11.4% y-o-y.  Grade B Non-CBD rents also dropped 2.7% q-o-q to THB 440/m2.  This quarter has shown a consecutive drop in overall rents continuing from Q1 2009. Grade A office rents in both CBD and Non-CBD areas fell.  Grade A CBD rents fell from THB 710/m2 to THB 700/m2, down 1.4% q-o-q and 5.7% y-o-y. Grade A CBD rents have now fallen by 5.8% in the first half of 2009. Grade A offices in the Non-CBD  faced a drop in rents of 1.2% q-o-q and 2.8% y-o-y to THB 583/m2.

Outlook
Although demand remained weak there was 13,500 m2 of growth in the total amount of occupied office space in the second quarter.  Net take up for the first half of 2009 was 22,131 m2. Any recovery in the economy will lead to an increase in demand and, with limited new supply, rents will rise.

Bangkok Office Q2 2009 – Report download

Pressure to further reduce office space requirements nevertheless began to ease as the macro economic environment became somewhat calmer and, in the case of China, began to recover and improve. Most Asian cities either recorded a smaller negative net absorption or a mild increase in office requirements. Overall vacancy for Asian cities rose 0.6% quarter-on-quarter 12.5% in the second quarter, but the rate of increase slowed from 1.2% in the previous quarter.

In Bangkok, the total amount of occupied Bangkok office space increased over the last six months, but only by 22,131 square metres.  Total office supply as of Q2 2009 was 7.86 million square metres with a vacancy rate of 14.0%, compared to 14.2% at the end of Q1 2009.  Grade A CBD rents decreased 5.7% year-on-year, standing at THB 700 per square metre per month for 200 – 300 square metre transactions.

There is very little new office space under construction.  The Energy Complex on Vibhavadi-Rangsit Road, comprising 119,000 square metres, will be completed in Q4 2009, but this has been fully let to PTT and affiliated companies.

In 2010, only Sathorn Square, Golden Land’s grade A development next to the Chong Nonsi BTS station will be completed with 73,500 square metres and Sivatel with 5,880 square metres on Wireless Road.  In 2011 the only new office building in Bangkok will be Park Ventures with  28,000 square metres on the corner of Wireless and Ploenchit Roads.

“With such a limited amount of new supply, any increase in the amount of occupied space created by a recovering economy will lead to an increase in rents,” said Mr. Nithipat Tongpun, Executive Director and head of Office Services at CB Richard Ellis Thailand.

Retaining existing tenants and attracting new ones remained the top priority for office landlords in Asia.  In many markets, office landlords displayed a definite willingness to negotiate lease restructuring and offer more incentives to desirable corporate occupiers. However, leasing markets were sluggish overall and office rents remained caught in the down cycle.  According to the CB Richard Ellis Asia Office Rental Index, overall office rents in Asia fell 6.7% in the second quarter, decelerating slightly from the 8.1% decline witnessed in the previous quarter as most cities underwent a milder rate of rental reduction.

Occupier activity in Tokyo was slower than expected in the second quarter. The majority of transactions concluded comprised either renewals in which existing occupiers achieved reduced rental costs in exchange for committing to longer lease terms, or corporate flight to quality in which companies opted for better locations without assuming higher rental costs.

Although economic conditions in South Korea improved during the review period, demand for quality office space in Seoul continued to shrink. The average vacancy rate for grade A offices climbed to 3.1% in the second quarter from 2.2% in the first quarter.

The Chinese government’s implementation of its four trillion Yuan stimulus package continued to help bolster business confidence in China during the second quarter. In Beijing, prime office demand from overseas companies began to rise and a number of major leasing transactions involving foreign companies were completed. However, in Guangzhou it was domestic occupiers, particularly state-owned enterprises with monopolistic positions in certain industrial sectors, who comprised the main source of demand for prime office space. Both cities enjoyed a significant increase in net absorption over the second quarter. Elsewhere, Shanghai edged towards positive absorption as overall sentiment improved, although the city continued to record negative net absorption during the review period.

In Taipei, the commercial property investment market performed well in anticipation of closer economic ties with Mainland China, prompting landlords to raise their rental expectations during the second quarter. However, office occupiers seemed disconnected from the optimism displayed by landlords as they struggled to make ends meet under the present tough economic environment.

Overall demand for office space in Hong Kong remained weak during the second quarter, directly reflecting the fact that the city is home to a sizeable concentration of MNCs and international financial institutions that have been directly impacted by the current crisis. The Central CBD, which accommodates many overseas banks’ Asian headquarters, witnessed an extremely sharp quarterly decline in rentals, and rents remained generally soft across all office sub-markets.

Singapore is also home to the Asian headquarters of a large number of MNCs and consequently saw the further weakening of prime office demand during the quarter. Prime rents have now fallen 46.6% from the peak recorded in Q3 2008 and occupancy rates will continue to face pressure from substantial new supply. Singapore has some 770,000 square metres of new office space in the development pipeline between now and 2013 and it seems certain that for the short term at least, supply will continue to outstrip demand.

In India, the election of a new government and falling interest rates improved local business sentiment during the second quarter. Although there were some small signs of improvement, Mumbai, Delhi and Bangalore witnessed office rents slide further as buildings in the CBD saw an exodus of occupiers as corporates moved to alternative locations in order to reduce real estate costs. Although the rise in demand for less costly premises bolstered office sub-markets outside the CBD, landlords of buildings in secondary office destinations struggled with the consequences of speculative overbuilding and were forced to increase incentives to recruit tenants.

Jakarta was the only city in Asia where rentals held firm, while Kuala Lumpur saw only a mild rental correction within the period under review. In Ho Chi Minh City, the low rent strategy adopted by the newly completed Centec Tower, the first grade A building to come on stream in a decade, drove average grade A rents down by 28.8% from the previous quarter.

CB Richard Ellis anticipates that the Asia office occupier market is witnessing demand beginning to stabilise and business confidence turn slightly more positive as clearer signs of economic recovery emerge. However, the recovery Asian economies are currently experiencing is unlikely to translate into the kind of brisk corporate expansion witnessed during the 2005 and 2007 period. Rather, it is anticipated that corporate occupiers will continue to adopt a conservative approach towards real estate decisions, especially those that would lead to an increase in operating costs. With respect to companies in Asia with operations which do not need to be situated in prestigious locations, many remain receptive to relocating these elements to lower cost premises, sometimes even opting for less mature business precincts in exchange for substantial savings.

226,880 m2 of office space is expected to be completed between 2009-2011 and is already under construction. The biggest project among future office developments is the Energy Complex which will open in 2009. The project has an estimated office space of 119,000 m2.

The vacancy rate was 14.2% up from 13.5% at the end of 2008.

Overall office rents fell by approximately 4%. Average grade A rents stood at Baht 710 per square metres per month, a drop of 4.4% on Q4 2008.

Throughout Asia, ongoing global financial turmoil continued to erode investment and business confidence, causing prime office leasing activity to slow dramatically. A broad-based reduction in office rentals has been seen as landlords have made tenant retention a top priority. Many tenants are now focusing on cost-saving measures, especially in view of continued difficult economic conditions.

However, in Thailand, the picture was different. DTAC signed the country’s largest ever lease during Q4 2008, in a deal for 61,500m2 in Chamchuri Square, a new grade A office development on Rama IV. Chamchuri Square is the largest new office building completed since the 1997 crisis, and over 80% of the building has been committed already.

Q1 2009 saw Citibank sign a lease for more than 20,000m2 of space in Interchange 21, a Grade A development on Asoke, just across from Exchange Tower. This new development has also seen over 80% of its space already committed despite opening just a few months ago.

“With a limited amount of new Grade A supply on the horizon, including Asia Centre this year and Sathorn Square next year, we expect the top end of the office market to be one of the first sectors to rebound,” states Mr. Nithipat Tongpun, Director & Head of Office Services at CB Richard Ellis Thailand. “Prime rental rates in Thailand have not fallen, unlike Singapore and Hong Kong.”

Source: CBRE Research

The office vacancy rate rose at a rapid pace across Asia during the fourth quarter with a rise recorded in 14 of the 17 markets tracked by CB Richard Ellis. Overall vacancy across the region rose by 4% between January and December 2008, but the lack of supply in many Asian commercial centres ensured that 12 markets recorded a vacancy rate of below 7% at of the end of 2008. The contraction of the finance and banking sectors exacerbated the downward pressure on rents with Tokyo suffering a fourth consecutive quarterly fall, albeit at a slightly slower rate of 1%. Office rentals in Hong Kong and Singapore recorded their biggest quarterly slump since 2000, falling 21.1% and 19.9% respectively.

CB Richard Ellis does not see much reason for companies in Thailand to move to decentralized areas to save money on office rent because there is not much difference in rent between similar quality buildings in the CBD and decentralized areas. Additionally, there are also high capital costs to relocate, including the cost of moving, fit-out, restoring premises to their previous condition and other associated expenses, which mean that savings of THB 100-200/ m2 are not very worthwhile, unless there is a significant reduction in the amount of space leased.