The Bangkok office market is a sector we rarely cover, but it’s certainly a sector that will affect many of our readers.
Given news that Bangkok office rents are at a record high, we felt it was of significant importance to report.
The piece below was written by Andrew Gulbrandson, the Head of Research and Consulting at JLL.
Office rents throughout Bangkok have continued to hit record highs.
Landlords have taken advantage of an increasingly tight supply situation that has seen vacancy rates stabilise in the single digits.
The Bangkok office market is now seeing sustained levels that have not seen been since the late 1980s prior to the pre-Asian Financial Crisis boom.
Rising rents and falling vacancy are being driven by occupier flight to quality, with tenants relocating and, in most cases, expanding – from older buildings into new projects.
More than 68 percent of Bangkok’s current office stock is more than 20 years old, and most buildings are rapidly becoming uncompetitive when compared with modern offerings.
Occupiers are increasingly drawn to newer projects, such as AIA Capital Center, which offers a wide variety of lifestyle amenities including F&B options and an on-site fitness centres.
Other projects, such as Gaysorn Tower and FYI Center, offer an abundance of attractive common areas that tenants can utilise.
As a result, rents in the prime grade (Grade ‘A’) segment are rising faster than those in secondary office spaces, and the gap between rental rates between segments is widening.
Data from JLL’s Thailand Property Intelligence Center illustrated that the average gross rent for prime office space across Bangkok during July was THB 824 per sqm per month, 20 percent higher than the market-wide average rent of THB 668 per sqm per month and 41 percent higher than the average gross rent of THB 513 per sqm per month for non-prime space.
Occupier flight to quality is also clearly reflected in different vacancy levels in the two market segments.
Findings from JLL suggested that the average vacancy rates for prime and non-prime office spaces during July 2018 stood at 6.0 percent and 9.8 percent respectively.
Prime grade vacancy rates have held steady, under the 7.0 percent mark, since early 2016 while non-prime rates have only recently moved into the single-digit range.
Notwithstanding record-high rental levels across Grade ‘A’ projects in the Bangkok office market, it is clear that many tenants in the market are willing to a pay a premium for Grade ‘A’ office space, despite the significant difference in price relative to lower quality space.
We are seeing the same pattern play out in Bangkok’s central business areas (CBAs), which include Silom, Sathorn, Wireless, Chidlom, Asoke and Phrom Phong.
Average prime grade rents in the CBA have risen by 10.9 percent year-on-year to THB 881 per sqm per month in July, well above the 4.5 percent growth recorded in non-prime CBAs average rents during the same period.
What does this mean for the Bangkok office market in the future?
Through until the end of 2019, there are 10 projects under construction that are available for lease totaling about 280,000 sqm of space. Approximately one-third of this space is already pre-leased.
Projects scheduled to complete during the second half of 2018 have strong pre-leasing. The T-One building near BTS Thong Lor station and Lad Phrao Hills near MRT Phahonyothin are nearly fully pre-let, while Whizdom 101 / True Digital Park near BTS Punnawithi and Singha Complex near MRT Petchaburi station are reportedly between 50 percent and 70 percent pre-leased.
With tight vacancy and limited availability of space in upcoming projects, we expect rents to continue rising and see the Bangkok office market continue to be titled in landlords’ favour until at least 2021.
This is when a new wave of supply is expected to come to market.