With a more positive political outlook, the Bangkok office market is beginning to see a move forward and growth in demand and rent, following a period where the market has been held back due to the combination of the global crisis and Thailand’s political uncertainty, according to a leading property consultant CB Richard Ellis (CBRE).

Whilst office demand has been slow, the market as of Q2 2011 was more active with clearer signs of expansion from existing tenants and a marginal increase in occupancy rates from the previous quarter to 86.5%.  CBRE’s office enquiries were up 34.2% q-o-q, an upswing indicating the market is heading towards the right direction.

An analysis of CBRE’s office enquiries also shows that 59% of enquiries involved an expansion, indicating that the key demand driver is from the expansion of existing businesses and space requirements from existing tenants rather than demand from entry of new multinational companies (MNC’s). Key growth industries in the past several years have been in the service and consultancy sectors.

The trend of expanding businesses and space requirements is expected to continue and with limited new supply coming to the market, rents will increase. In 2011, Park Ventures Ecoplex and Sathorn Square are the only two Grade-A CBD office buildings to be completed, adding approximately 100,584 sq.m. to the office supply. The only other new Grade-A CBD building currently in the construction pipeline is the UBC III building on Sukhumvit 35 which will offer 50,200 sq.m. of lettable space and is due for completion in Q1, 2014.

On the supply side, developers of new office buildings have a clear development direction and ensure that the building specifications matches tenants’ requirements such as ceiling heights, the core to window depth, a column free space layout, knock out panels enabling tenants to install a private inter-floor staircase, direct BTS link, destination control lifts with turnstiles for security in an elegant lobby.

The developer of Park Ventures Ecoplex, a new Grade-A office on the corner of Wireless and Ploenchit Roads, for example, has surveyed top Grade-A office buildings across the Asia Pacific region and carefully studied tenant’s requirements beforehand to ensure they deliver a specification and design that matches tenants’ needs. As the project’s consultant, CBRE was also involved during the design process and provided our unique insight on the market and tenants’ needs today and in the future which is underpinned by our dominance in the Bangkok office market where CBRE concludes over 70% of the market transactions.

“Due for opening on 1st September, over 20% of the space at Park Ventures has already been leased before completion to tenants ranging from international fashion companies, consultancy firms, international serviced offices and leading MNCs. The top quality Grade-A project has also achieved the highest rent in the current market at THB 800 to THB 820 per sq.m. per month., almost back to the peak rent prior to the crisis,” said Mr. Nithipat Tongpun, Executive Director, Office Services at CBRE Thailand. The project is perfectly positioned on the BTS Sukhumvit line with a direct BTS link. Park Ventures’ eco-concept and sustainability has also been the key to attracting tenants and the record rent.

Apart from technical specifications, companies are increasingly focused on sustainability and energy efficiency, particularly MNCs who require LEED certified buildings. The Leadership in Energy and Environmental Design (LEED) accreditation is awarded to projects which have been designed to minimise the impact on the environment while improving the indoor environment for occupants. Features that maximise energy efficiency, water efficiency and use of sustainable materials are some of the essential criteria. More tenants are now embracing the green trend and setting higher standards for their work place environment with factors such as indoor air quality and circulation and natural lighting being key considerations as these factors have measured benefits in terms of a company’s effectiveness and efficiency. There are currently three office complexes in Bangkok which qualify as green buildings. Energy Complex is one of Thailand’s first LEED Platinum certified buildings, while Park Ventures is currently applying for LEED Platinum and Sathorn Square applying for LEED Gold.

In addition to quality and environmental considerations, access to mass transit is essential and the focus remains on the CBD areas which accounted for 71% of all CBRE office enquiries in Q2 2011.  The preference continues to be near mass transit stations along the Sukhumvit Line from Siam to Ploenchit, a direct BTS link or where two mass transit systems intersect such as Interchange 21 and Exchange Tower are added benefits.  New Grade-A buildings which meet these requirements can achieve a rent of up to THB 800 per sq.m. per month, higher than the market average of THB 680.

With market indicators pointing in a positive direction, the current market is ideal for tenants looking to make their move. It is recommended that tenants who need to make their move in the next two to three years make their move decisions now to take advantage of existing rents and an opportunity to upgrade to newly completed premises. With a limited new Grade-A supply and almost no new supply in the pipeline coupled with continued business expansion, rents will increase as soon as take up reaches a certain point.

The trend for eco-friendly office buildings has been around in Thailand over the past few years. When the trend first emerged in 2009, it remained unforeseen whether the trend was here to stay or whether this was just a passing fad. Two years on, it is clear that the green trend has been embraced by the market and is likely to stay on as global warming has been having an effect on the environment and people’s life.

With increased awareness for environmentally sustainable developments, developers can obtain an accreditation to endorse their buildings.

LEED, a system from the United States is one of the most commonly known and used accreditation, which is also beneficial for marketing purposes and in promoting office buildings to potential tenants.

To qualify as a LEED-certified building, the project must be designed to minimise the impact on the environment, while improving the indoor environment for occupants. Features that maximise energy efficiency, water efficiency and the use of sustainable materials are some of the essential criteria.

There are currently three new office complexes in Bangkok, which incorporate eco-designs. Energy Complex is one of Thailand’s first LEED-Platinum certified buildings, while Park Ventures is applying for a LEED Platinum certificate and Sathorn Square is applying for a LEED Gold.

The justification of higher building costs for green buildings against its benefits is now more apparent than in the past. Construction costs for green buildings are at least 5 to 10 per cent higher compared to standard Grade-A offices due to added-on features and engineering systems that maximise energy efficiency and reduce electricity consumption.

For example, Park Ventures incorporates eco-friendly concepts such as specially coated glass, natural light-balancing sensors, water reusable features and a variable air volume air-conditioning system, as well as features green spaces that exceed the EIA requirement.

These additional features all add to construction costs, but despite the immediate up-front costs which are higher, the green building trend has succeeded because of its significant long-term cost-saving benefits, especially for landlords.

The value of green buildings is underpinned by its long-term energy-saving, maintenance cost reductions and increased building value for sale and rental. In Thailand, the concept of green offices is relatively new, with very few buildings that are operational. Therefore, we cannot yet determine exactly how much is saved in the practice. In principle, we expect the energy savings to be in the region of 20 to 30 per cent.

The increase in rental value is not yet clearly seen, but lower operating costs will definitely reduce the payback period for the landlord.

In a highly competitive market, landlords also have the marketing edge against other standard Grade-A offices, particularly in terms of attracting multinational tenants who increasingly put more focus on sustainability policies, which could extend to the criteria for office selection. Being a “green” developer also has positive marketing and branding implications for the company and its Corporate Social Responsibility programme, especially in a market where environmental sustainability plays a growing role.

From the tenants’ perspective, the energy savings may not be reflected substantially as most rents are inclusive of service charges and air-conditioning, and only electricity charges from lighting will have direct savings impact. But tenants who pay attention to staff health and working environment will find beneficial features such as improved indoor air quality, an allocated bicycle parking space and a direct BTS link, which is an important consideration for all tenants. Easy access to mass-transit systems is also a point accredited by LEED as it helps promote usage and reduces the need to use up fuel.

With new green office buildings now coming close to completion, landlords and tenants have a growing awareness of the benefits of a green building and are now embracing this eco-trend, which is set change the future of office buildings.

Central Business District (CBD) office rents in Hong Kong are about THB 5,000 per square metre per month, compared to THB 680 per square metre per month in Bangkok.   Tokyo is in second position at THB 3,329 and the Nariman Point district in Mumbai is in third position at THB 2,900 per square metre per month.

Most cities in Asia saw an increase in demand with falling vacancy rates and rising rents.  Beijing office rents rose by over 40%, compared to the first quarter of 2010.  Core Central rents rose by almost 40% in Hong Kong and Singapore by 28.4% year-on-year.

Bangkok office rents remained flat with virtually no change over the last 12 months while Vietnam was one of the few countries where office rents fell.  Ho Chi Minh City saw a 12% decline and Hanoi 8.5%.    Bangkok office rents are some of the cheapest in Asia, with only Manila and Jakarta being lower.

There is almost eight million square metres of completed office space in Bangkok with only 270,000 square metres of new buildings due to be completed by the end of 2014.

“We are starting to see some increase in demand driven by the overall strength of the Thai economy,” stated Mr. James Pitchon, Executive Director of CBRE Thailand.   Annual new demand for Bangkok office space fell from 2006 to 2009 and improved slightly in 2010, but it is still well below the levels seen between 2000 – 2005.

“If we see a return to the level of demand that we saw between 2000 – 2005, then we could see rents rise significantly as vacancy rates fall, particularly for the best grade A buildings,” said Mr. Nithipat Tongpun, Executive Director of Office Services at CBRE Thailand.

Click to download a full report of Q1 2011 Asia Pacific Office MarketView  

The total office supply in Bangkok stood at 7,978,543 sqm. at the end of Q3 2010, up 1.5% Y-o-Y. No new supply was completed in this quarter.

The overall take-up in the Bangkok office market was 6,866,172 sqm., up 0.1% Q-o-Q and 1.4% Y-o-Y. The total occupancy rate also improved slightly from 86% to 86.1% in this quarter.

The vacancy rate was 13.9%, a fall from the 14.0% recorded in Q2 2010.

After falling for the last seven quarters, average Grade A office rents (both in the CBD and Non-CBD) remained unchanged at THB 614/sqm. per month for the first time during Q3 2010. CBD Grade A office rents also remained unchanged at THB 680/sqm./month.

Total net take-up in Q3 2010 was 6,446 sqm., which was down 76.1% Q-o-Q and 30.3% Y-o-Y. Since the beginning of 2010, the total accumulative net take-up for the first 9 months was 50,851 sqm..

In the third quarter, we saw initial signs that tenants are now more confident about the Thai economy. We are seeing fewer signs of multinationals contracting and more enquiries from both local and multinational companies, either regarding new start-ups or expansions. No new prime office supply came on-stream during the quarter.

CBD Grade A office rents remained unchanged at THB 680/sqm./month for the first time in Q3 2010 after falling for the last seven quarters. The Business Sentiment Index (BSI) remained stable at 50.3 in August, compared to July which marked the end of the political turmoil. A slight improvement in market performance, production and employment components was recorded. The Bank of Thailand predicts that business sentiment in Thailand will continue to improve over the next few months, with a predicted BSI level of 56.7 in November.

Following the completion of Sathorn Square, in Q1 2011 no new Grade A CBD supply is set to come on stream until the opening of Park Ventures (27,000 sqm.) in late 2011. This should ensure that occupancy rates bounce back over the next 18 months. We believe that the market has reached a turning point where demand is starting to increase, coupled with very little future supply under construction. The test over the next two quarters will be whether we will see a significant increase in demand that will lead to an increase in rents.

This is an extract from Bangkok Offcie MarketView Q3 2010, click to download the full report.

CB Richard Ellis has seen a general upgrade of security in the form of access controls throughout Asia and multinational tenants are now demanding that certain features be incorporated into the office design.

The general objective is to be able to restrict access to the building to only employees of tenants and those visitors who have provided identification at the reception.

“In some buildings in Bangkok, this has been done manually with the use of security guards but modern technology in the form of destination-control lifts and card-reading turnstiles is preferable,” said Mr. James Pitchon, Executive Director at CB Richard Ellis.

Sathorn Square, Bangkok’s most modern grade A office development, will incorporate both systems.  The developer has installed Schindler ID destination-control lifts.  All tenants’ employees will have a proximity access card.  They will enter the lift lobbies by turnstiles, similar to those used at BTS sky-train stations.
In the lift lobby, they will use the card at a terminal which will show which lift car has been assigned to their floor at that time.  Each card will be programmed to show which floors an employee is allowed to access.

The advantage of destination-control lifts is not only that access to individual floors is restricted to just those permitted for tenant’s employees and visitors, but that this system also increases the efficiency of the lifts.  A programme assesses the demand to access a floor at any particular time and assigns the lift that will most efficiently take people to that floor.

The turnstile system records when employees and visitors enter and exit the building and prevents unauthorized access to the office floors.

Turnstile access-control and destination-control lifts are now the industry standard for grade A buildings in Asia, and developers of new grade A office developments in Bangkok such as Sathorn Square are ensuring that their developments match international standards.

As of Q2 2010, the total office supply in Bangkok was 7,978,543 sqm, up 1.5% Y-o-Y. No new supply was completed in this quarter.

Overall take-up in the Bangkok office market was 6,859,726 sqm, up 0.4% Q-o-Q and 1.4% Y-o-Y. The total occupancy rate also improved slightly from 85.6% to 86% in this quarter.

The vacancy rate was 14.0%, a fall from the 14.4% recorded in Q1 2010.

In Q2 2010, overall rents fell for the sixth consecutive quarter since the beginning of 2009. Grade A offices in the CBD area faced a 0.4% Q-o-Q and a 2.9% Y-o-Y drop in rents, down to THB 680/sqm in this quarter from THB 683/sqm in Q1 2010.

In terms of net take-up, Grade A non-CBD offices posted the highest level of net new take-up with 25,947 sqm, mainly due to tenants moving into the Energy Complex. The growth was also due to both expansion when the tenants moved and some relocation from grade B buildings, increasing the take-up of space at non-CBD Grade A buildings. Total net take-up stood at 26,924 sqm, which was up 54% Q-o-Q and 99.1% Y-o-Y.

Apart from the ongoing movement of tenants into the Energy Complex and the relocation of Citibank from a Grade B CBD building to Interchange 21, a Grade A CBD office (resulting in the growth of 26,924 sqm in the total amount of occupied office space in the quarter), demand for office space remained weak during Q2 2010. We expect that provided there is a continued recovery in the global economy and some stability in Thai politics, the strong economic growth in Thailand will result in increased demand for office space but this could emerge next year rather than the second half of 2010.

Two office buildings are scheduled to be completed in 2010: Sathorn Square (73,584 sqm); and Sivatel (5,880 sqm).

Supply will continue to be limited in the coming years, with only two Grade A CBD office buildings: Sathorn Square and Park Ventures, expected 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 circumstances, however, office rentals are expected to stay flat over the next six months or they may fall further as landlords compete to retain tenants and fill vacant space.

This is an extract from Bangkok Office MarketView Q2 2010, click to download the full report.

Asia’s leading commercial centres recorded impressive growth in office demand in the second quarter of 2010 as the steady regional economic recovery encouraged multinational companies to reactivate expansion plans suspended earlier after the onset of the global financial crisis, according to a leading international property consultants CB Richard Ellis.

Led by strong growth in Greater China, overall office rents in Asia rose 2.1% in the second quarter of 2010, ending seven consecutive quarters of decline. Overall vacancy declined by 90 basis points quarter-on-quarter to 10.9%. The increased level of enquiry for office space during the second quarter did not immediately translate into leasing transactions. However, this suggests that the leasing market will remain active over the coming quarters.

“Within the second quarter, Greater China witnessed the largest upsurge in leasing activity with both multinational and domestic corporations quite active in taking up space in major cities. The total net absorption of prime office space in Hong Kong and first-tier Chinese cities, namely Beijing, Shanghai and Guangzhou, collectively accounted for three quarters of the regional aggregate in the second quarter,” explained Mr. Andrew Ness, Executive Director of CBRE Research Asia.

“Office rentals in these cities also recorded a larger magnitude of growth compared to other Asian cities. Singapore was another standout performer, with Grade A rents returning to growth after six consecutive quarters of decline,” added Mr. Ness.

Elsewhere across Asia, robust demand has as yet to induce significant hardening in rentals as landlords competed to fill space amid relatively high availability and, in certain markets, a large quantum of future supply scheduled to come on-stream over short-to-medium term.

Commenting on the outlook for the remainder of this year Andrew Ness said, “The Asian office market is expected to remain relatively muted for the remainder of 2010. Companies continue to be confident about the regional economic outlook, but concerns over a slower global economic recovery following the outbreak of the eurozone debt crisis will probably curtail aggressive expansion by multinationals over the short-term.”

Thailand
In Thailand, overall business conditions improved, as reflected in an increase in the Business Sentiment Index (BSI) to 49.9 in May, up from 46 in April.  The improvement was driven by an increase in all BSI components, especially production which resumed its normal level after the ending of the protests.   Vacancy rates of Grade A CBD offices declined slightly to 16.45% in the second quarter of 2010 (compared to 17.4% in the first quarter of 2010), with a net absorption of 10,160 sq.m.  The growth in take-up was due to the relocation of an international bank to a Grade A office building from a Grade B building.   Prime office rents stood at THB 680 per sq.m. (US$ 1.95 per sq.ft.) per month in the second quarter of 2010, compared to THB 683 in the first quarter of 2010.

Japan
In Japan the Tankan economic survey confirmed that the country’s economic recovery was continuing and that businesses were regaining confidence. The turnaround in the economy encouraged some tenants to relocate to higher grade buildings or to those in more convenient locations. In some selected cases, companies expanded their footprint and moved to buildings with more space. However, overall demand for office space in Tokyo remained weak and rents were unchanged over the quarter.
 
Korea
In Korea, office demand in Seoul increased along with the improvement in corporate sentiment, but notwithstanding this fact, the average vacancy for Grade A office properties continued to climb as new space was added to the market. New buildings scheduled for launching in the second half were observed offering below-market rents to recruit tenants. Rental growth in Seoul is expected to remain limited in forthcoming quarters, although office leasing demand should remain stable as the economy is expected to hold up well.

Hong Kong
In Hong Kong, near full occupancy in premium Grade A buildings and the strong recovery in demand from investment banks drove CBD rental growth of 8.4% quarter-on quarter. Office buildings in decentralised locations attracted strong interest from companies looking to relocate and consequently enjoyed a brisk rate of absorption. Looking ahead, large space users will be hard pressed to find available space citywide given the lack of current options and rents are expected to see further growth in light of the limited quantum of new supply in the pipeline.

Mainland China
In Beijing, all the major office submarkets recorded growth in rentals with citywide prime office rents climbing 4.1% quarter-on-quarter. The Financial Street and Zhongguancun areas saw demand for prime office space outstrip supply although the CBD continued to record vacancy of over 20% despite the rise in leasing activity. Improved business sentiment and new rounds of hiring also resulted in an active office leasing market in Shanghai. However, the substantial amount of future supply in the pipeline acted as a counterbalance to landlords’ becoming overly aggressive with respect to excessively raising their quoted rents. Elsewhere, the Guangzhou prime office market continued to recover during the second quarter. Encouraged by the buoyant leasing activity witnessed since the beginning of 2010 and the consequent decline in available space, landlords raised their rental expectations for office buildings that had earlier been launched with more conservative leasing strategies in the preceding quarters.

Taiwan
In Taiwan, despite brisk GDP growth in the first half of the year, office occupiers generally remained cost conscious. A significant number of Grade A buildings witnessed the downsizing or departure of SME tenants and hence prime office rentals remained flat.

Singapore
Leasing momentum in Singapore remained strong during the second quarter, partly due to pent-up demand from multinationals, which appear mostly to have recovered from the global financial downturn and who are now in a position to engage in cautious expand. Average prime rents grew 3% quarter-on quarter in the second quarter and vacancy across all micro-markets fell. Although 641,264 sq.m. (6.9 million sq.ft.) of new office space is scheduled to come on stream between now and 2015, a portion of existing office stock in the CBD will be redeveloped or converted to other uses, reducing the spectre of oversupply.

India
Major Indian office markets continued to see growth in leasing activity but rentals were largely unchanged or showed only incremental growth as the quantum of vacant space outside the CBD area remained significant. The New Delhi office market enjoyed a strong revival with considerable leasing activity reported across the National Capital Region. However, similar to the previous quarter, rentals in the Grade A segment did not witness any growth. Mumbai reported an increase in enquiries for office space although the growth in interest failed to translate into immediate transactions. Leasing demand was largely driven by corporate consolidation and relocation to achieve cost savings. The Bangalore office market continued to stabilise although landlords were forced to remain flexible when negotiating with tenants as demand still lagged behind prevailing robust levels of availability.

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