Bangkok Office Market Q1-2011

Q4 2010/Q1 2011

new Supply

DemanD

RentalS

occupancy

Bangkok office MarketthailanD

www.colliers.co.th

Bangkok Office Marketexecutive SummaRyno new office supply came onto the market in Q1 2011 but Q2 2011 will see an influx in supply with the scheduled opening of Sathorn Square. However over the course of the next three years less than 2% of supply will be added to the market and this is likely to have a favourable effect on occupancy levels going forward.

Limited relocations or expansions took place in Q1 2011 which yet again reflected the ongoing concerns regarding the global economic recovery and thailand’s own simmering domestic situation. general elections are expected in the middle of this year and it is likely that the current stasis will remain until these are concluded.

rental rates remained stable in the cBD while occupancy showed a slight improvement with a 0.4% increase q/q. However the addition of Sathorn Square will likely impact occupancy negatively in the short term.

Q1 2011 | office

maRket inDicatoRS

COLLIERS INTERNATIONAL | P. 2

Bangkok office Market rePort | Q1 2011

More than 70% of existing office buildings were supplied to the market in the 1990’s which represented a period of economic growth on the back of a surge in manufacturing exports. this is in stark contrast to only

two percent added in the five years following the effects of the asian financial crisis (afc). even with the pick up in the second half of the decade, only 13% of supply came from the first decade of the century.

the Bangkok office market even today is primarily a result of a five year boom during the period 1992 to 1999 which ended due to launches coming to a halt as a result of the afc. even after the crisis projects continued to be completed culminating in the 140,000 sq m empire

tower in 1999, which even today is the largest office building in the cBD. the following five years were a barren period for the office market as a total of only around 186,000 sq m was completed.

Source: colliers international thailand research


total Supply aDDeD foR each five yeaR peRioD

cumulative Supply in Bangkok

hiStoRical Supply

aDDitional Supply foR each yeaR



the chart shows how supply has fared since the effects of the afc. the pick up began in 2004 and culminated in over 250,000 sq m of additional supply in 2008 on the back of renewed confidence in the middle of the decade. However political uncertainty along with the global financial

crisis (gfc) has led to a reduction in new supply. one office building was opened in 2010, in the outer cBD area and approximately 110,000 sq m scheduled to be completed in 2011.


Supply By location, Q1 2011


the cBD area represents the biggest share of the office building market on Bangkok with around 35% of total supply, followed by the northern

fringe area and outer cBD area with 19% and 15% respectively. overall office supply is dispersed throughout the city.



Bangkok still leads the way when it comes to total office supply compared to the other main commercial cities in aSean and is largely the legacy of the building boom prior to the asian financial crisis. it must also be

stated that other countries have secondary commercial centres which is not the case in thailand. these would include Surabaya in indonesia, Penang in Malaysia and cebu in the Philippines.

nearly 135,000 sq m of office space is scheduled to be supplied in Bangkok in the next three years in only two zones. two office buildings are scheduled to be completed in the northern fringe area in the next

three years. overall expected additional new supply over the next three years will represent a less than 2% increase in total supply. this represents very little additional space for the market to absorb.

Source: colliers international asia offices


office Supply in aSean citieS enD of 2010

futuRe Supply By location

Supply in compaRiSon with otheR aSean citieS

futuRe Supply


occupancy Rate By location, Q1 2011

occupancy Rate in 3 locationS, Q1 2009 – Q1 2011



the outer city West area still commands the highest occupancy rate for Q1 2011, and the outer city north has the lowest occupancy rates. the

Southern fringe occupancy rate recorded the second lowest figure due to the location away from mass transit lines.

the occupancy rate in the cBD area made a slight improvement from the previous quarter with a nearly 0.4% move upwards q/q, although this is likely to be adversely affected by the advent of Sathorn Square, due in

Q2 2011. the northern fringe stabilized after previous declines and the outer cBD showed a very modest rise.

DemanD – take up



the effect of the introduction of Sathorn Square in Q2 2011 is likely to have a short term detrimental effect on occupancy after a recovery in Q1 2011. However with modest growth predicted for the following two years

and a limit on new supply, colliers international thailand predicts a gradual but sustained rise in occupancy rates in 2012. this will in turn lead to a certain hardening of rental rates going forward.


actual anD futuRe eStimate of occupancy RateS


March 2011 continued the upward trend and was even higher than the very strong January and february figures. from figures released by the Department of Business Development the number of company

registrations in 2010 for the whole thailand is the highest in 99 years, which represents a positive signal for the office building market in the longer term.

Source: Department of Business Development and colliers international thailand research

newly RegiSteReD fiRmS DuRing JanuaRy 2009 – maRch 2011

DemanD DRiveRS


expoRtS fRom thailanD on a monthly BaSiS

Rental Rate By location

Source: Bank of thailand and colliers international thailand research


industrial growth is the main driver that powers the office market as it leads to the need for trading, financial, legal and insurance services, amongst others, to support it. exports started to recover from the gfc in

2009 with a steady pattern of growth despite setbacks from political disturbances. the number for february was the highest since June 2010.

Unsurprisingly the cBD commands the highest rental rates due to the location and number of grade a buildings. rents in the outer cBD dropped while increases were recorded in the cBD and northern fringe areas. this could be explained by the fact that a significant number of

offices are located close to both the BtS and Mrt while most offices in the outer cBD are located some distance from mass transit lines and many are relatively old.

Rental Rate, Q1 2011



grade a buildings command higher rentals than grade B buildings. there is also some distinction between B & c grade offices although not so pronounced.

in Q1 2011, rental rates for office buildings in the cBD area remained more or less the same when compared to Q4 2010. in light of the current

softened market conditions landlords have found it difficult to raise rents during renewal negotiations.



Rental Rate By gRaDe Q1 2011

hiStoRical Rental Rate in thRee main locationS, Q1 2009 – Q1 2011




hiStoRical Rental Rate By gRaDe

Rental Rate of office BuilDing in Bangkok By DiStance fRom BtS / mRt (metReS), Q1 2011



rental rates of grade a office buildings have remained stable since 2007 while grade B office buildings recorded a drop of approximately 5 – 6%. colliers international thailand has noticed that some landlords have offered more favourable terms and incentives for tenants to maintain occupancy during difficult economic times, especially for small businesses

and this has likely adversely affected grade c rentals. the increasing age of grade c buildings is also likely to become noticeable as image and facilities may be increasingly unfavourable to tenants, and owners should consider significant renovations in the same fashion as the retail sector in order to maintain competitiveness.

offices located close to mass transit stations command a premium although many are newer buildings that would be usually command higher rentals. the sharpest difference occurs in grade c buildings with

around a 40% difference being registered. Mass transit only explains part of an office building’s appeal. access to expressways may be equally or even more important for tenants.

StRengthSBangkok remains the largest supply of office space in the region. this provides a strong backbone of current supply to accommodate any future rapid growth that could come about from aSean integration.

the diffuse nature of office locations means that tenants have greater choice in finding suitable premises and benefits the market as a whole. this aids any future expansion by companies into alternative locations in order to enhance market presence. this geographical spread also makes it easier to establish back up offices.

weakneSSeSthe current large quantity of supply will also take time to be absorbed by the benefits accruing from economic growth and this is likely to dampen further significant new supply until occupancy rates become more robust.

as the majority of office space was constructed over 13 years ago and 14% of total space is over ten years old. the overall age and quality of buildings is starting to deteriorate and could start to hamper the introduction of new it systems and create a poor image. Many old grade c buildings are in need of renovation in order to appeal to businesses.

oppoRtunitieSthe aSean economic community and trade pacts between aSean and china, india and other large economies open the door for strong economic growth which will stimulate the office sector. the Board of investment’s regional operating Headquarter incentives may help facilitate this to some degree.

Limited land available for office development in Hong kong and Singapore could lead to ever increasing rental rates and Bangkok could attract more companies to set up regional offices. However this would also depend on many other factors and competition from other aSean countries.

Mass transit development over the next twenty years will add to Bangkok’s appeal as a commercial centre for regional players.

thReatSthe future opening up of the service sector in aSean could create problems for thailand if policy towards the service sector remains protectionist in favour of local companies through provisions of the foreign Business act and inadequate incentives from the Board of investment for the service industry.

While the domestic political situation has calmed since the events of last april/May there are still undercurrents of concern that keep a lid on potential expansion plans by many companies which would invigorate the office market. only a significant period of stability can ensure significant demand for office space in the future.

Swot analySiS





appenDix

office Zoning


the general lack of zoning restrictions in Bangkok has led to the existence of significant office supply in a wide range of locations in the city and how the market has perceived the cBD has evolved over the past 20 years. the original cBD was located in the Silom and Surawongse roads, home to the vibrant gold market and other trading businesses. the development of modern office buildings in the nineties, with a larger floor plate could not be accommodated in this area and the cBD began to take shape in the eastern section of Sathorn road.

While Sukhumvit road up to asoke is primarily perceived as an entertainment and residential area, a large number of grade a buildings sprung up in the nineties and also in the past few years. it is therefore considered as part of the cBD. as a working definition the cBD, for the purposes of office classification, is where a significant number of grade a office buildings are located. as such the old cBD is now considered the outer cBD as well as Petchburi road where more grade B offices are located. over time this structure could evolve.


collieRS inteRnational thailanD management team

retaiL SerViceSasharawan Wachananont | Senior Manager aDViSorY SerViceS | HoSPitaLitY Jean Marc garret | Director ProJect SaLeS & MarketingMonchai orawongpaisan | Senior Manager reSiDentiaL SaLeS & LeaSingnapaswan chotephard | negotiator office & inDUStriaL SerViceSnarumon rodsiravoraphat | Senior Manager aDViSorY SerViceSnapatr tienchutima | associate Director

reaL eState ManageMent SerViceSBandid chayintu | associate Director

inVeStMent SerViceSnukarn Suwatikul | associate Director Wasan rattanakijjanukul | Senior Manager

reSearcHantony Picon | associate DirectorSurachet kongcheep | Senior Manager

VaLUation & aDViSorY SerViceSnicholas Brown | associate DirectorPhachsanun Phormthananunta | associate Director Santipong kreemaha | Senior Manager Wanida Suksuwan | Manager PattaYa officeMark Bowling | Senior Sales ManagerSupannee Starojitski | Senior Business Development Manager / office Manager

coLLierS internationaL thaiLand:

Bangkok office 17/f Ploenchit center, 2 Sukhumvit road, klongtoey,Bangkok 10110 thailandtel +662 656 7000fax +662 656 7111 email [email protected] Pattaya office 519/4-5, Pattaya Second road (opposite central festival Pattaya Beach), nongprue, Banglamung, chonburi 20150tel +6638 427 771fax +6638 427 772 email [email protected]

ReSeaRcheR:

thailandantony Piconassociate Director | researchemail [email protected]

ReSeaRcheR:

thailandSurachet kongcheepSenior Manager | researchemail [email protected]

512 offices in 61 countries on continents

this report and other research materials may be found on our website at www.colliers.co.th. Questions related to information herein should be directed to the research Department at the number indicated above. this document has been prepared by colliers international for advertising and general information only. colliers international makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. any interested party should undertake their own inquiries as to the accuracy of the information. colliers international excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. colliers international is a worldwide affiliation of independently owned and operated companies.

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Bangkok Office Market Q1-2011

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