Bangkok--Oct 27--CB Richard Ellis
The days of Bangkok being the bargain basement for office accommodation in Asia are now over as vacancy rates have fallen to a level where office rents are rapidly increasing, according to the latest office market research from CB Richard Ellis.
Grade A office rents have risen by 32% from the lowest point which was in 1999 when overall vacancy rates were 34%. Overall grade A vacancy rates are now 10.87% and many grade A buildings both in the suburbs and central business district (CBD) are now approaching full occupancy.
The grade A vacancy rate in the CBD is now at 12.8% and few new buildings will be completed over the next three years. Rents are going to continue to rise as vacancy rates fall and providing the economy continues to grow.
“Rents are not yet back up to the peak levels of 1991 and 1992, but could be within the next two years,” according to Mr. Nithipat Tongpun, Director and Head of Office Services at CB Richard Ellis.
On paper, this would seem to be great news for landlords, however, despite rising rents, they will still face challenges. As rents rise so will tenants expectations of services, and as capital costs of fit out become a lower percentage of rental costs, there is more incentive to move if buildings do not match tenants standards. Tenants have a wide range of expectations from the landlord.
Initially, these will be the negotiations to lease premises. Tenants do not want to find hidden costs that do not appear in the offer letter, but do in the contract. Tenants have to get budgets approved and exceeding budget results in questions from head office.
Tenants do not want an excessively complex lease agreement, they expect the terms to be similar to the market standard. Normally, a multinational company will require inhouse or external legal advice on the contract and if the lease does not follow market practice and it too one sided in favour of the landlord, this will create delays harming both the tenant and landlord.
Tenants need fast responses from landlords as they are under pressure from regional management to finalise a deal. Tenants also prefer English language contracts that easily to be reviewed by regional offices.
Generally, tenants expect landlords to make money on the rent and not to profit from numerous other small charges.
The next step is handover of premises and fit out where tenants want an efficient process in terms of the condition of the premises, fit out approved and reasonable controls on the fit out process without hidden additional charges.
Fifteen years ago, premises were handed over as a bareshell. Today tenants expect a handover condition with suspended acoustic tiles, light boxes, sprinklers, and air-conditioning as well as party walls separating their unit from other offices and the corridor with quality double leaf frameless entrance doors.
“Tenants nowadays expect a higher specification of building and premises, comparable to what is available in other major cities,” added Mr. Nithipat.
Once tenants are in occupation, they want to be able to easily communicate with the landlord or a representative who can make decisions. Tenants want problems to be resolved quickly without having to chase up the landlord.
The Thai office market is going to be very tight for the next three years and one of the challenges to landlords will be dealing with requests from tenants for expansion space. When a building is 100% occupied, it is not going to be possible to satisfy all tenants need for additional space which is why CB Richard Ellis advises landlords to regularly communicate with tenants, to understand their needs and to be able to strategically plan expansion requirements.
Currently, only 283,000 square metres of new office space is under construction due for completion from the end of this year up to 2006. By comparison, total new take up was 246,766 square metres in 2003 and is expected to be over 250,000 square metres in 2004.
“This is only the beginning of the new office market cycle. We have seen recommencement of construction in buildings where work had stopped, but almost no new build activity, so rents are going to continue to rise unless the economy slows,” commented Mr. Nithipat.
Landlords who best match their tenant requirements will get the best rents and maintain full occupancy rates. The risk to landlords is to increase rents while not matching tenants expectations. As rents rise, tenants will become more conscious about what they are paying and will move if the quality does not match the rents demanded.
About CB Richard Ellis
Headquartered in Los Angeles, CB Richard Ellis (NYSE:CBG) is the world's leading real estate services firm (in terms of 2003 revenue). The company serves real estate owners, investors and occupiers by offering strategic advice and execution for property leasing and sales; property, facilities and project management; corporate services; debt and equity financing; investment management; valuation and appraisal; research and investment strategy; and consulting. Including partners and affiliates, CB Richard Ellis has more than 300* offices across 50* countries around the world.
CB Richard Ellis established an office in Bangkok in 1988 and in Phuket in 2004. CB Richard Ellis (Thailand) Co., Ltd. has grown to be a leading real estate services provider, offering a full range of services including sales and leasing, property and facilities management, development consultancy and valuation advisory. For more information, visit the company's website at www.cbre.co.th.
* Includes partner offices
For further information
Mr. James PitchonExecutive Director
02 654 1111
Mr. Nithipat TongpunDirector - Head of Office Services
02 654 1111 Ext. 218
Ms. Ngamjai Jearrajarat Press Relations Assistant
02 654 1111 Ext. 223 End.