Bangkok--5 Jul--Knight Frank Chartered (Thailand)
Business confidence in Asia’s key markets continues to improve with world-wide economic activity stimulating growth in the region.
Bangkok is now ranked 3rd behind Hong Kong and Shanghai, according to an Asia Pacific office vacancy rates report by international property consultants Knight Frank Chartered (Thailand) company.
Japan finally appears to be lifting out of its long depression, with key consumer and market survey hinting at increased business confidence and consumer spending. Grade A vacancy rates continued to decline, which should sustain the rental growth seen in 2005 into 2006
Similarly, the Singapore office market is facing a tight supply situation, with strong demand stemming primarily from Financial and Business Service occupiers, reaching levels not seen since the 1997 Asian economic crisis. The much anticipated One Raffles Quay is expected to complete in 2006, adding 1.3 million sq ft to the market, much of which is already pre-let.
Strength rankings
1. Hong Kong
2.Shanghai
3. Bangkok
4. Kuala Lumper
5. Mumbai
6. Singapore
7. Sydney
8. Melbourne
9. Delhi
10. Jarkarta
11. Tokyo
Strength rankings are based on 22 separate economic, demographic and property variables.
Source: Knight Frank Chartered (Thailand) Company
Shanghai and Beijing office development continues apace, however the market is now in danger of being over supplied. Rental levels are unlikely to see a great adjustment, although a stabilization or slight decline in prime rents in the key centres is likely.
Western outsourcing continues to bolster the Indian occupational market, with demand dominated by IT, Business Process Outsourcing and Call Centres. Developers have responded by providing high quality space, but have barely been keeping up with demand. Strong demand has continued to exert upward pressure on capital values and rents.
Kuala Lumpur office market has continued to strengthen as business confidence has improved. 2005 saw a 10% increase in prime rents and growth is expected to continue in 2006 at the moderated rate. While the Hong Kong office market has maintained its path of rapid rental growth and strong take-up. The outlook remains positive with sustained demand and little supply coming to the market in 2006 likely to fuel further substantial rental growth. The final quarter of 2005 saw an 805% uplift in the rental values, bringing market rents above the levels achieved prior to Asian economic crisis of the late 1990s. Investment activity was reserved in 2005 as interest rate rise led to many investors taking a ‘wait-and-see’ approach. However, interest rates are expected to level off which, in conjunction with the strong fundamentals underlying the occupier market, should see increased investor activity.
Marcus Burtenshaw, Director and Head of Agency, Knight Frank Chartered (Thailand)Co., Ltd. said “The Bangkok office market is expected to remain strong, vacancy rates showed stable growth as new stock is absorbed and hence office rents should continue to increase throughout 2006 and into 2007.”
Mr. Burtenshaw said there is currently 4,803,352 square meters of office space in Bangkok that that can be leased out to the public, and there are a further 3 million square meters of owner occupied space. Supply increased in the final quarter of 2005 as an additional four new buildings came on stream, which in turn also led to a corresponding increase in vacancy rates.
However, the higher vacancy rates are expected to have a very limited impact on rental growth if they do it may cause rental growth to slow down somewhat initially but growth should return over the next six months. “In our view this is only a temporary situation as the new buildings are expected to fill throughout the year” he said.
Demand for office space remains relentless and does not seem to have been affected by recent political woes. Whilst this may have dampened the SET index, companies have continued wit their expansion plans and unemployment remains at just ~1.5%.
The most active sectors remain IT, Telecoms and Insurance and these growth industries are set to continue to drive demand, he said.
Office rents are at all time highs with some premium buildings reportedly achieving in excess of Baht 900 per square meter for 100-200 sm tenancies. However on average grade A office rents in Knight Frank’s basket were achieving Baht 590 per square meter per month, whereas average asking rents of grade A space was found to be Baht 621 per square meter per month.
Rental growth slowed during the first quarter of 2006 as the market adjusted to recent new supply of space, however it is expected that this new supply will be quickly absorbed by the market and the recent trend in rental growth will continue throughout 2006.
Rents have now reached levels where quality new office developments in good locations can yield attractive returns.
However any new properties to be announced will take 2-3 years to enter the market and in the meantime tenants will have to continue to be faced with the prospect of exponential rental growth.
As occupiers start to feel the pinch of higher rents we expect to see more companies look to purchase property as it becomes a more financially viable alternative to leasing office space.
“We therefore expect to see more investment transactions and developments announced over the coming year as Bangkok’s attractive yields and growth patterns have attracted the attention of regional and global real estate investors and developers.” he said.