Knight Frank Thailand has pointed out that the scarcity of office space in Bangkok’s CBD areas became even more pronounced in Q4, 2015 with a growing demand but limited supply, whilst the occupancy rate is constantly creeping up. The company added that the office market is expected to witness a shortage within the next two years, which should result in a continuing rise in the rental rate. Also, Knight Frank expects to see an expansion or a relocation of businesses into Non-CBD areas, should the supply in CBD remained relatively stagnant.
Mr. Marcus Burtenshaw, Executive Director and Head of Commercial Agency Department, Knight Frank Thailand, Co., Ltd. said, “Tenants are facing a soft economy in a climate where office rents are likely to continue to rise, and they need to look at cost control strategies that could be employed in their workplace. Flexible working arrangements, standardised (and reduced) desk allocations, split operations or even moving to secondary locations might all be considered.”
According to Knight Frank Thailand Research, the office supply in 2015 stood at 4,671,593 square metres, an increase of 96,405 square metres or 2.11% from the previous year. The additional supply came from the completion of AIA Sathorn Tower, Major Tower, and Bhiraj Tower at EmQuartier. Both Major Tower and Bhiraj Tower at EmQuartier are located in the Inner Sukhumvit area, while AIA Sathorn is only building located on Sathorn Road, close to Chong Nonsi BTS station. In 2015, 53% of the total supply was located outside CBD areas while 47% was in the CBD.
Figure 1: Bangkok Office Supply and New Supply from 2011-2015.
Source: Research and Consultancy Department, Knight Frank Thailand Co., Ltd.
Note: These figures exclude multi-owner occupied premises and office buildings smaller than 5,000 sq.m.
In 2016, the supply of office space is expected to be approximately 152,960 square metres from five office projects with approximately 87% of the space located in non-CBD areas, while only 13% will be in the CBD. After 2017, it is expected that the majority of new office space supply will be located in non-CBD areas such as Bangna, Outer Sukhumvit, Ratchadapisek, etc.
Figure 2: Known Future Office Supply in Bangkok
Source: Research and Consultancy Department, Knight Frank Thailand Co., Ltd.
Regarding demand, the research revealed that the total occupied space stood at 4,334,324 square metres, representing an occupancy rate of 92.8% and an increase of 1.3% from last year.
The highest growth at the end of 2015 was seen in the Grade A office in the non–CBD category, with an increase of 8.2% on a year-on-year basis. However, Grade A offices in CBD areas enjoyed the highest occupancy rate of 94.3%, but also suffered the lowest growth rate year-on-year at 0.4%. This should not come as a surprise as the high occupancy rate did not allow for much further growth. Overall, on an annual basis, the office market showed a growth rate of 2%.
Figure 3: Bangkok Office Supply, Demand and Occupancy Rate, 2011-2015
Source: Research and Consultancy Department, Knight Frank Thailand Co., Ltd.
Note: These figures exclude owner-occupied premises and office buildings smaller than 5,000 sq.m.
In 2015, the net take-up of office space was the highest since 2011, at approximately 149,301 square metres. Also, the total net take-up was even more than the new supply, which was 96,405 square metres. The net take-up of office space has risen every year since 2011. Over the past few years, with a limited supply of office space in CBD areas, we anticipate a shift in office take-up from the CBD towards non-CBD areas as some of these areas are within a convenient reach from the CBD through mass transit systems. In addition, given the current net take-up and new supply rates, there is a possibility of a supply shortage within the next two years, according to Knight Frank Thailand Research.
The average rental rate in 2015 for Grade A offices in both CBD and Non-CBD areas show a high growth rate between 9% and 10% from the previous year. Grade A offices in the CBD have the highest rental rate, at 937 baht per square metre, followed by those in the Non-CBD area at 723 baht per square metre. The average rental rate for Grade B in both CBD and Non-CBD areas are lower, and saw a relatively small change from 2014. There was approximately a 5.3% rise for Grade B in the CBD and 4.0% for those in Non-CBD areas. When looking at asking rent by major roads, highest quotes could be found from properties on Ploenchit and early Sukhumvit Road. We expect to witness the trend for rental rates to continue to grow if the net take-up continues to remain very high.
Figure 4: Bangkok Office per Sqm Asking Rent by Major Roads, 2011-2015.
Source: Research and Consultancy Department, Knight Frank Thailand Co., Ltd.
Contrary to the expectations of many, Knight Frank Thailand believes that the slowing growth in the overall Thai economy has not yet had a spillover effect on the office occupancy rate. This is largely due to the rapid growth of the IT sector, where local subsidiaries of major e-commerce businesses now occupy large spaces in buildings such as AIA Capital Center and CyberWorld on Ratchadapisek Road, and Empire Tower on Sathorn. The growth in this sector has also created a trend where smaller start-up businesses start moving into larger office buildings from rowhouses in order to benefit from improved corporate images and the ease of access to mass transit stations.
