Q4 2011 | office
thailand
Bangkok office Market
Bangkok Office Market highlights
market indicators 2010 - 2011 new Supply Demand Rentals occupancy
Q4 2011 provided no new supply to the market which coupled with minimum relocation activity has caused occupancy levels to remain high. 2012 is set to bring new supply to the market in the Northern Fringe and Outer CBD areas although this will represent a minimal increase in overall supply. This lack of new developments is set to continue over the next four years with floor space expected to increase by around 5.5% only.
Most companies intending to relocate in the second half of 2011 had to put their plans on hold following the floods. Some major office buildings in the Northern Fringe and Outer City North were hit. Whilst landlords of flood affected buildings took pity on their tenants and reduced rents for the period, many occupiers moved into temporary offices within the dry CBD.
Despite the floods, overall occupancy rates in Q4 2011 were largely unchanged from the previous quarter. There were slight variances by zone with the Outer CBD and Northern Fringe remaining stable whilst the Southern Fringe, Western Fringe and Outer City North registered small falls. Rental rates increased in almost every location except the CBD and Northern Fringe area for Q4. Despite the CBD remaining dry, the majority of businesses were still affected as office workers struggled to commute in from the flood affected areas. This caused major disruption which has affected output. The plans of companies who were otherwise proposing to expand during this period have been revised accordingly.
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The recovery process in the Bangkok office market was ceased by the lately flooding the office market seems slowdown of leasing activity between October and end of November. The all of business are interrupted and their plans have to be postponed. The lag directly affects demand for office space.
Bangkok office Market REPORT | Q4 2011 Historical Supply Total supply added for each five year period
Source: Colliers International Thailand Research
Most of the existing supply of office buildings was constructed in the 1990’s (around 70%) during the period of rapid economic growth driven by the surge in export sales. The first five years of the new millennium were afflicted by the Asian financial crises which caused new construction
projects to grind to a halt by 2003. Even though the market improved during the second half of the decade, only 12% of current supply was built between 2005 and 2011.
Historical Supply in Bangkok
Source: Colliers International Thailand Research
More than 118,000 sq m of office space hit the market in 2011 of which 85% was located in the CBD with the remainder in the Northern and
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Fringe areas. By the end of 2011, the Bangkok office stock had reached 8,016,000 sq m.
Bangkok office Market REPORT | Q4 2011
ADDITIONAL SUPPLY FOR EACH YEAR
Source: Colliers International Thailand Research
The chart shows the slowdown in new office supply following the Asian financial crises. In 2003 new supply had ground to a halt. Development restarted the following year, increasing in 2005 and 2006 before falling back again in 2007. The subsequent year (2008) produced the largest volume of new office space since the 1990’s when over 250,000 sq m
was released. New supply decreased again in 2009 and dramatically in 2010 as a result in the local political problems coupled with the global financial crises when only one office building was completed. 2011 new supply of two office buildings totalling 118,000 sq m was in line with 2005 output.
Supply by Location, Q4 2011
Source: Colliers International Thailand Research
The CBD still has the largest supply of office space although the Northern Fringe is growing fast due to its lower land values and greater supply of
development sites. Suitable development sites within the CBD are now scarce which is reflected in the land values.
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Bangkok office Market REPORT | Q4 2011 Future Supply Cumulative future supply by location
Source: Colliers International Thailand Research
The next four years is expected to see a small increase in office supply with nearly 440,000 sq m in the pipeline. The Northern Fringe will experience the largest growth rate with eleven new buildings planned
which is more than 79% of the expected pipeline supply. This represents a modest increase of 5.5% in overall supply with the majority of buildings expected to complete in 2014.
Demand – Take up Occupancy rate by location, Q4 2011
Source: Colliers International Thailand Research
The Outer City West and Outer CBD areas still enjoy the highest occupancy rates at 87% for Q4 2011 with the Southern Fringe and Outer
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City North having the lowest rate of 80%. Proximity to the City’s mass transit line stations is still a significant driving force in occupancy rates.
Bangkok office Market REPORT | Q4 2011
Occupancy rate in 3 main locations, Q1 2009 – Q4 2011
Source: Colliers International Thailand Research
Occupancy rates have remained steady since Q3 2011 with the CBD increasing at a slightly higher rate than the Outer CBD and Northern Fringe areas. This is largely as a result of the increase in temporary lettings within the CBD during the period of flooding. In addition as the
two new buildings released in Q3 2011 (Sathorne Square and Park Venture Ecoplex) continue to fill up, CBD occupancy is set to improve further.
Actual and future estimate of occupancy rates
Source: Colliers International Thailand Research
Occupancy rates over the next year are expected to increase slightly as pipeline demand is set to outstrip the limited new supply expected. The completion of Sathorn Square and Park Venture Ecoplex in Q3 2011 has had a short term negative effect on occupancy rates which will continue
until the buildings fill up. The increase in demand during 2012 is however likely to be constrained by the continuing global economic crises as companies decide to push back their office expansion or relocation plans for the time being.
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Bangkok office Market REPORT | Q4 2011 Demand drivers Newly registered firms during January 2009 – November 2011
Source: Department of Business Development and Colliers International Thailand Research
More than 2,000 new companies were registered in 2011 by the Department of Business Development. Although registrations were
significantly down during the flooding, the trend seems to be in an upward direction which should further drive demand in 2012.
Exports from Thailand on a Monthly basis
Source: Bank of Thailand and Colliers International Thailand Research
Industrial growth is the main force driving the office market as it creates the need for trading, financial, legal and insurance services amongst others to support it. Exports recovered well from the global financial
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crises in 2009 and enjoyed a steady pattern of growth until the widespread flooding at the end of 2011.
Bangkok office Market REPORT | Q4 2011 Rental Rate, Q4 2011 Rental Rate by Location
Source: Colliers International Thailand Research
Unsurprisingly the CBD commands the highest rental rates due to the central location, abundance of grade A buildings and the proximity to the mass transit lines particularly the BTS Skytrain. Rental rates within the
CBD increased towards the end of 2011, partially driven by the take up of temporary offices while rates outside of the flood defences reduced.
Rental Rate by Grade, Q4 2011 Rental Rate by Location
Source: Colliers International Thailand Research
It is not surprising that grade A rents are the highest due to their quality and location in the CBD and along the sky train route.
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Bangkok office Market REPORT | Q4 2011
Historical Rental Rate in Three Main Locations, Q1 2009 – Q4 2011
Source: Colliers International Thailand Research
In Q4 2011, rental rates for office buildings in the CBD increased at the expense of the Outer CBD and Northern Fringe (which are outside of the flood defences). The Northern Fringe has now overtaken the Outer CBD
and is commanding slightly higher rents. In light of current market conditions landlords have found it difficult to increase rents at lease renewal.
Rental rate of office building in Bangkok by distance from BTS / MRT (Metres), Q4 2011
Source: Colliers International Thailand Research
As with condominium projects, office rental rates are higher the closer they are to the mass transit line stations. Being close to a station is preferable due to the ease of movement around Bangkok for employees
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and business visitors alike. A number of office developments now have a direct pedestrian link to a BTS station which further adds to their appeal. This is reflected in the rental rates achieved.
Bangkok office Market REPORT | Q4 2011 FORecast Following the flooding at the end of 2011, the next year is expected to see limited new supply hitting the market with an influx of space in the pipeline for 2014. Increasing land prices in the inner CBD, especially in areas along the mass transit lines have lead to a reduction in new development. Most new schemes planned are within the outer fringes, particularly in the Northern Fringe where land is cheaper and more abundant. The number of new retail and office developments along the Ratchadapisek Road, especially in the vicinity of Rama IX is likely to lead to an alternative CBD location which can compete with the existing CBD due to lower rents.
The impact of the flooding coupled with the global economic slowdown will affect the growth of companies. It is doubtful however that many will downscale their office requirements. In terms of location, it is too early to say which areas will benefit although CBD space inside the flood defences and within close proximity to the mass transit line stations is likely to remain the most desirable.
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Bangkok office Market REPORT | Q4 2011
APPENDIX
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Bangkok office Market REPORT | Q4 2011 Office Zoning
The general lack of zoning restrictions in Bangkok has lead to office supply being constructed in a variety of locations across the city. The original CBD was located in the Silom and Surawongse Roads which is home to the vibrant gold markets. The development of the majority of Bangkok’s modern office buildings in the 1990’s could not be accommodated within this area and the CBD began to take shape in the eastern section of Sathorn Road.
While the Sukhumvit Road up to Asoke was historically perceived as an entertainment and residential area, a large number of grade A buildings sprung up in the nineties and continued to be developed over the subsequent years. This area is now considered part of the CBD with the original Silom and Surawongse roads now classed as the Outer CBD along with Petchburi Road where more Grade B offices are located. This structure could however evolve further.
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Bangkok office Market REPORT | Q4 2011 COLLIERS INTERNATIONAL THAILAND MANAGEMENT TEAM RESEARCH Tony Picon | Associate Director Surachet Kongcheep | Senior Manager PROJECT SALES & MARKETING Monchai Orawongpaisan | Senior Manager
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PATTAYA OFFICE Mark Bowling | Senior Sales Manager Supannee Starojitski | Senior Business Development Manager / Office Manager researcher: Thailand Surachet Kongcheep Senior Manager | Research email surachet.kongcheep@colliers.com
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