Q3 2010 | OFFICE
thailand
Bangkok Office Market REPORT
Bangkok Office Market Executive Summary No new office supply came onto the market in Q3 2010 but Q4 2010 will see an influx in supply with the scheduled opening of Sathorn Square. Limited relocation activity in Q3 reflecting the ongoing political impasse deterring companies from making long term plans.
market indicators Q2-Q3 2010 Supply DEMAND RENTAL OCCUPANCY
OCCUPANCY
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Occupancy rates remained the same as Q2 2010 albeit with variances by zone. Outer CBD and the Eastern Fringe recorded gains of around 1% whilst Outer City East and Northern Fringe registered small falls. Rental rates remained more or less the same in the CBD for Q3, although a fall in rates was more pronounced in the Northern Fringe. This was likely to be a correction to the steep rise in 2009. Indications are that landlords are offering steeper discounts and incentives to maintain large floorplate tenants. As of September 30th, no discernable impact on the office market has come about from the ongoing demonstrations. However if these become protracted and effect the CBD area then this could have a negative impact over time as leasing contracts expire. Back offices or split locations could be a future trend but it is likely to take further disruptions for tenants to take this seriously.
BANGKOK OFFICE MARKET REPORT | Q3 2010
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 with a larger floor plate in the nineties could not be accommodated in this area and the CBD began to take shape in the eastern section of Sathorn road.
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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 considered Outer CBD as well as Petchburi road where more grade B offices are located. Over time this structure could evolve.
BANGKOK OFFICE MARKET REPORT | Q3 2010 Historical Supply Total supply added for each five year period
Source: Colliers International Thailand Research
More than 70% of existing office buildings were added 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 the mere
two percent added in the five years following the effects of the Asian Financial Crisis. Even with the pick up in the second half of the decade, only 13% of supply comes from the 2000’s.
Cumulative supply in Bangkok
Source: Colliers International Thailand Research Remark : E = Estimated supply
The Bangkok landscape even today is a result of a five year boom period from 1992 to 1999 which ended due to launches coming to a halt as a result of the Asian Financial Crisis. 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 centre of Bangkok. The following five years were a fallow period for the office market as only a total of around 186,000 sq m was completed. It
was only in the second half of the decade did growth in supply pick up with over four and half times more supply being added in the last five years compared with the first five. No new supply came to the market during Q1 – Q3 of 2010, however in Q4 2010 two new office buildings are scheduled to be completed in the CBD and Outer CBD area with a total area of around 79,000 sq m.
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BANGKOK OFFICE MARKET REPORT | Q3 2010
ADDITIONAL SUPPLY FOR EACH YEAR
Source: Colliers International Thailand Research
The chart shows how supply has fared since the effects of the Asian Financial Crisis. 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.
Total supply BY OWNERSHIP, Q3 2010
Source: Colliers International Thailand Research
A significant number of offices are multi-owner in what are also referred to as office condos. Almost all of these were built prior to 2000 when investors were looking to make rapid capital gains during the boom period that preceded the economic crash in 1997. There are some positives in occupying multi-owner office such as individual air conditioning systems which are cost effective for companies operating in unusual working hours. However there are disadvantages in the form of sometimes uncoordinated property management and more expensive air conditioning systems for companies using office space predominantly in working hours.
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BANGKOK OFFICE MARKET REPORT | Q3 2010 Future Supply Future Supply By YEAR & location
Source: Colliers International Thailand Research
Two office buildings are scheduled to be completed in 2010, one in the CBD area and another just outside in the Outer CBD area. The total office space area will rise by 79,000 square metres representing an increase of less than 1% of current supply. However Sathorn Square, scheduled
to open in Q4 2010, will represent the largest office tower in the CBD since Empire Tower in 1999. The only other new office building to be supplied in 2010 is Sivatel Offices with nearly 6,000 sq m of lettable area.
Demand – Take up Occupancy rate by location, Q3 2010
Source: Colliers International Thailand Research
The Outer City West area still commands the highest occupancy rate for Q3 2010, and the Outer City North has the lowest occupancy rates. The
Outer City East occupancy rate recorded the second lowest figure.
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BANGKOK OFFICE MARKET REPORT | Q3 2010
Occupancy rate in 3 locations, Q1 2009 – Q3 2010
Source: Colliers International Thailand Research
The occupancy rate in the CBD area remains stable from the previous quarter with only a 0.2% move upwards q/q, meanwhile the Outer CBD increased by around 1.3%. The Northern Fringe occupancy fell 1.9% q/q while Outer City East decreased by around 1.2%. The positive numbers from the Outer CBD are due to higher occupancies in offices close to the
new Airport Link which started commercial operation in August. Over the next few quarters it will be interesting to see if the convenience of getting to the airport proves a strong magnet for businesses to relocate.
Demand drivers Newly registered firms during January 2009 - August 2010
Source: Department of Business Development and Colliers International Thailand Research
January 2010 recorded a surge in company registrations but the April / May events led to a downturn, but after that period registrations picked
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up and August registered a positive increase, boding well for the future.
BANGKOK OFFICE MARKET REPORT | Q3 2010
Exports from Thailand on monthly basis
Colliers International Thailand Research Source: Bank of Thailand
Industrial growth is the main driver that powers the office market as this 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. This augurs well for future demand for office space
although ongoing financial problems in some European countries and the general retracement of the fiscal stimulus in many of Thailand’s key export partners could spell problems, exacerbated by foreign currency weakness of the euro and dollar.
Asia Pacific Office Tenant Survey 2010 A survey was made by Colliers International regarding sentiment in the office market in the Asia Pacific region. A summary has been provided with an emphasis on Thailand. The Impact of the Global Financial Crisis (GFC) on Tenant’s Decision – Making
1. Are the effects on the GFC still affecting your leasing decision – making plans?
Colliers International Thailand Research
55% of the companies surveyed in Asia claim to be still affected by the GFC. Singapore is the most optimistic, with only 43% of companies still affected by the crisis, but approximately 62% of companies in Thailand
feel that the dark cloud of the GFC still hangs over them; this is partly due to the reliance of the country on exports that in turn affects the office market.
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BANGKOK OFFICE MARKET REPORT | Q3 2010
The Impact of the Global Financial Crisis (GFC) on Tenant’s Decision – Making
2. Where the market is now sitting on the property cycle clock?
Source: Colliers International Thailand Research
Looking at the Asia property clock, on average, tenants believe the property cycle is now heading towards an upswing. Indonesian tenants have a more confident outlook regarding their market with an average of 8 o’clock representing a move towards an upswing meanwhile Singapore tenants also believe they are now well past the bottom of the market and heading in a positive direction. The situation remains different for
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Thailand as the added political uncertainties has meant that confidence still remains in the doldrums with a perception that the country is still in the process of a downswing and yet to reach the bottom of the cycle. Such negative sentiment accounts for lack of office activity and tenants await a more positive atmosphere before embarking on future planning.
BANGKOK OFFICE MARKET REPORT | Q3 2010
The Impact of the Global Financial Crisis (GFC) on Tenant’s Decision – Making
3. Has your organization relocated the head office in the last two years?
Source: Colliers International Thailand Research
Similar figures were recorded for all three countries surveyed in South East Asia showing the effect of the GFC on office activity.
4. Is your organization planning to relocate the head office within the next three years?
Source: Colliers International Thailand Research
The ongoing uncertainties are clearly affecting the office market in Thailand in comparison with Singapore and Indonesia with far fewer
tenants expecting to relocate. This points to a protracted period of inactivity in the office market in Bangkok.
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BANGKOK OFFICE MARKET REPORT | Q3 2010 Rental Rate, Q3 2010 Rental rate by zone
Source: Colliers International Thailand Research
Unsurprisingly the CBD commands the highest rental rates due to the location and the number of grade A buildings. Rents in the Northern Fringe dropped the same as the Outer CBD while increases were recorded in the Eastern Fringe area and Outer City West. 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 by grade Q3 2010
Source: Colliers International Thailand Research
Grade A buildings command higher rentals than grade B buildings. There is also some distinction between B & C grade offices.
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BANGKOK OFFICE MARKET REPORT | Q3 2010
Historical rental rate in 3 main locations, Q1 2009 – Q3 2010
Source: Colliers International Thailand Research
In Q3 2010, rental rates for office buildings in CBD area fell slightly by 0.3% compared to Q4 2009. Overall rental rates have remained stable
although the Northern Fringe has overtaken the Outer CBD likely due to the proximity to mass transit lines.
Historical rental rate by grade
Source: Colliers International Thailand Research
Rental rates of grade A office buildings have remained stable since 2007 while grade B office buildings recorded a small drop. 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.
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BANGKOK OFFICE MARKET REPORT | Q3 2010
Rental rate of office building in BANGKOK by distance from BTS / MRT (Metres)
Source: Colliers International Thailand Research
Offices located close to mass transit stations command a premium although many are newer buildings that would be usually more expensive to rent because of this. 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.
REGIONAL COMPARISON Net Rent of Grade A Office Building in South East Asia
Source: Colliers International Asia Pacific Research Remark : 1 US Dollar = 30.25 Baht, as of 30 September 2010 by Bank of Thailand
Singapore has the highest grade A rental rates in South East Asia, just ahead of Ho Chi Minh City in Vietnam with its current undersupply. Bangkok rates are similar to that of Kuala Lumpur but are ahead of Manila
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and Jakarta. Overall the city remains competitive in relation to other commercial centres in the region.
BANGKOK OFFICE MARKET REPORT | Q3 2010
Average age of office buildings by grade
Source: Colliers International Thailand Research
Many grade C buildings were constructed prior to economic boom of the 1990’s and the age itself of these buildings are a predeterminant of their
grade. Many older buildings were constructed with smaller floorplates due to their location on small plots of land in busy locations.
Forecast The office market still remains in somewhat of a holding pattern with the current uncertainties regarding the global economy and Thailand’s own home made concerns has meant tenants keeping future expansion plans on hold. The year 2011 could be a period when businesses start to have a clearer view of where the country is headed. At the end of 2010, Sathorn Square, a grade A building will provide more than 70,000 sq m to the market. This will affect demand, supply and rental rates in the CBD area and due to its large floorplate, widen the discounting provided to large size office users to both renew leasehold contracts or to be encouraged to relocate.
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BANGKOK OFFICE MARKET REPORT | Q3 2010 COLLIERS INTERNATIONAL THAILAND MANAGEMENT TEAM PROJECT SALES & MARKETING Wasan Rattanakijjanukul | Manager ADVISORY SERVICES Napatr Tienchutima | Manager OFFICE, INDUSTRIAL & RETAIL SERVICES Narumon Rodsiravoraphat | Senior Manager
480 offices in 61 countries on 6 continents United States: 135 Canada: 39 Latin America: 17 Asia Pacific: 194 EMEA: 95
REAL ESTATE MANAGEMENT SERVICES Bandid Chayintu | Associate Director
• The third largest commercial real estate services company in the world • The second most recognised commercial real estate brand globally • US$2 billion in annual revenue • Over 2 billion square feet under management • Over 15,000 professionals
ADVISORY SERVICES | HOSPITALITY Jean Marc Garret | Director INVESTMENT SERVICES Nukarn Suwatikul | Senior Manager RESIDENTIAL SALES & LEASING Patima Jeerapaet | Managing Director RESEARCH Antony Picon | Senior Manager Surachet Kongcheep | Manager VALUATION & ADVISORY SERVICES Nicholas Brown | Associate Director Phachsanun Phormthananunta | Manager PATTAYA OFFICE Mark Bowling | Sales Manager Supannee Starojitski | Business Development Manager
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researcher:
researcher:
Thailand Antony Picon Senior Manager | Research email antony.picon@colliers.com
Thailand Surachet Kongcheep Manager | Research email surachet.kongcheep@colliers.com
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