Bangkok--15 Feb--CBRE Thailand
According to CBRE, an international property consultant, despite its weak economic growth, the Bangkok office property market performed well in 2016.
CBRE Research reports that although office supply in Bangkok grew by 140,000 square metres, vacancy continued to fall to 8% and rents rose between 5 to 9%, depending on location and grade.
The new office supply under construction is limited with only 225,000 square metres. due to be completed in 2017, and 167,000 square metres due to be completed in 2018. This has led to tenants having to sign leases in new buildings even before construction has been completed, according to CBRE Research.
Bangkok has had a surplus of office space supply for many years, meaning that tenants had a wide variety of space in completed buildings, and did not need to commit to buildings while they were still under construction.
The Bangkok office vacancy rate has dropped, for the first time since the early 1990's, to below 10% in 2013. The vacancy rate has continued to fall limiting tenant's choices in existing buildings, particularly, the best quality central business district (CBD) developments with direct access to mass transit.
The choice of available space for the large users in completed buildings is even more limited. Currently, there are no completed CBD grade A office buildings with more than 5,000 square metres on consecutive floors. This means that tenants now have to sign leases of buildings which are still under construction in order to secure offices that match their requirements.
"CBRE has fully let SC Tower, a new 11,000-square-metre development on Phaholyothin Road, even prior to its completion. Previously, CBRE had leased 100% of M Tower on Sukhumvit Road, for more than a year before completion, and 60% of FYI Center on Rama IV Road before it was completed last year," said Mr. Nithipat Tongpun, Executive Director – Head of CBRE's Office Advisory and Transaction Team.
This trend is likely to continue with tenants already committing to Gaysorn Tower, the only new grade A building that will be completed in the CBD in 2017.
Leasing a building under construction is more complicated for tenants. In a completed building, a tenant can see what they are going to get, and there are no risks of a time delay.
"In a building under construction, a tenant needs to be able to understand the floor plans and specifications, because they cannot see the finished product. They need to have confidence that the landlord can deliver the building according to the designed specifications, and more importantly, can complete the building on schedule, so that the tenant can completely fit out and move in with enough time to reinstate their existing premises before the lease on the current premises expires," added Mr. Nithipat.
CBRE Research anticipates that the tight office supply situation will continue in 2018 and 2019. The Bangkok office supply situation from 2020 onwards will depend on how many developers start construction on the new office projects this year.
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