Bangkok Office Market Report Q4 2010

year end 2010 | OFFICe

thailand

Bangkok office Market
rePort

Bangkok Office Market
executive Summary
Limited new office supply came onto the market in Q4 2010 but Q1 2011 will see an influx in supply
with the scheduled opening of Sathorn Square. However over the course of the next three years
less than 2% of supply will be added to the market and this is likely to have a favourable effect on
occupancy levels going forward.

there was minimal relocation activity in Q4 2010 reflecting the ongoing political impasse and
global financial concerns that are still deterring companies from making long term plans.
market indicatOrS
occupancy rates remained the same as in Q3 2010 albeit with variances by zone. the outer cBD
2009 - 2010
and the outer city east recorded gains of around 4% and 1% whilst eastern fringe, outer city
north and outer city north registered small falls.
Supply

demand rental rates increased somewhat in the cBD and northern fringe for Q4, although a fall in rates
was more pronounced in the outer cBD. this was likely to be a correction to the steep rise in
rentalS 2009. indications are that landlords are offering steeper discounts and incentives to maintain
large floorplate tenants.
Occupancy

indications from the Board of investment regarding incentives for the service sector have not
come to fruition as of 2010, apart from looser criteria for regional operating Headquarters. the
service sector is seen by many observers as the weak link as thailand moves to 2015 and the
liberalization of trade in services in aSean. the lag directly affects demand for office space.

as of December 31st, no discernable impact on the office market has come about from the
ongoing demonstrations. However if these become protracted and affect the cBD area, especially
the rajaprasong intersection, 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. the election year could also spell trouble for companies operating
and overall business sentiment remains cautious until at least after the election is contested.

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BangkOk OFFICe Market rePOrt | Q4 2010

Office ZOning

the general lack of zoning restrictions in Bangkok has led to the existence While Sukhumvit road up to asoke is primarily perceived as an
of significant office supply in a wide range of locations in the city and entertainment and residential area, a large number of grade a buildings
how the market has perceived the cBD has evolved over the past 20 sprung up in the nineties and also in the past few years. it is therefore
years. the original cBD was located in the Silom and Surawongse roads, considered as part of the cBD. as a working definition the cBD, for the
home to the vibrant gold market and other trading businesses. the purposes of office classification, is where a significant number of grade
development of modern office buildings in the nineties, with a larger a office buildings are located. as such the old cBD is now considered
floor plate could not be accommodated in this area and the cBD began the outer cBD as well as Petchburi road where more grade B offices are
to take shape in the eastern section of Sathorn road. located. over time this structure could evolve.

COLLIERS INTERNATIONAL | P. 2


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 only two
percent added in the five years following the effects of the asian financial
crisis (afc). even with the pick up in the second half of the decade, only
13% of supply came from the first decade of the century.

cumulative Supply in BangkOk


the Bangkok landscape even today is a result of a five year boom during half of the decade that growth in supply picked up with over four and a
the period 1992 to 1999 which ended due to launches coming to a halt half times more supply being added in the last five years compared to the
as a result of the afc. even after the crisis projects continued to be first five.
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 no new supply came to the market during Q1 – Q3 of 2010. However in
following five years were a fallow period for the office market as a total Q4 2010 one new office building was completed in the outer cBD area
of only around 186,000 sq m was completed. it was only in the second with a total area of around 5,600 sq m.



additiOnal Supply fOr each year


the chart shows how supply has fared since the effects of the afc. the crisis (gfc) has led to a reduction in new supply. one office building
pick up began in 2004 and culminated in over 250,000 sq m of additional was opened in 2010, in the outer cBD area. the total office space area
supply in 2008 on the back of renewed confidence in the middle of the has risen by nearly 6,000 sq m representing a very modest increase of
decade. However political uncertainty along with the global financial less than 0.1% of current supply.

Supply By lOcatiOn, Q4 2010


the cBD area represents the biggest share of office building market on area and outer cBD area with 19% and 15% respectively.
Bangkok with around 35% of total supply, followed by northern fringe



future Supply

future Supply By lOcatiOn


Sathorn Square, scheduled to open in Q1 2011, will represent the largest over the next three years will represent a less than 2% increase in total
office tower in the cBD since empire tower in 1999. three office supply. this represents very little additional space for the market to
buildings are scheduled to be completed in the northern fringe area absorb.
during the 2011 – 2013 periods. overall expected additional new supply

demand – take up

Occupancy rate By lOcatiOn, Q4 2010


the outer cBD area still commands the highest occupancy rate for Q4 northern fringe occupancy rate recorded the second lowest figure.
2010, and the outer city north has the lowest occupancy rates. the



Occupancy rate in 3 lOcatiOnS, Q1 2009 – Q4 2010 Occupancy rate in 3 lOcatiOnS, Q1 2009 – Q4 2010


the occupancy rate in the cBD area made a slight improvement from the around 1%. the outer cBD increased by just less than 1% although at
previous quarter with a nearly 1% move upwards q/q, although this is this point in time the airport Link would have no real effect on this
likely to be adversely affected by the advent of Sathorn Square, due in Q1 change.
2010. the northern fringe occupancy fell 1% q/q and outer city east by

demand driverS

newly regiStered firmS during January 2009 - nOvemBer 2010

Source: Department of Business Development and colliers international thailand research

January 2010 recorded a surge in company registrations though the number of company registrations in 2010 for the whole thailand is the
april /May events led to a downturn, but after that period registrations highest in 99 years, which represents a positive signal for the office
picked up and november has shown a highest number in last two years. building market.
from figures released by the Department of Business Development the



expOrtS frOm thailand On a mOnthly BaSiS

Source: Bank of thailand and colliers international thailand research

industrial growth is the main driver that powers the office market as it 2009 with a steady pattern of growth despite setbacks from political
leads to the need for trading, financial, legal and insurance services, disturbances. in october export value fell in September by just less than
amongst others, to support it. exports started to recover from the gfc in 8% and then remained stable in the last two months of 2010.

rental rate, Q4 2010

rental rate By ZOne

Source: colliers international thailand research

Unsurprisingly the cBD commands the highest rental rates due to the the fact that a significant number of offices are located close to both the
location and number of grade a buildings. rents in the eastern fringe BtS and Mrt while most offices in the outer cBD are located some
dropped as in the outer city east while increases were recorded in the distance from mass transit lines and many are relatively old.
Western fringe and northern fringe areas. this could be explained by



rental rate By grade Q4 2010


grade a buildings command higher rentals than grade B buildings. there
is also some distinction between B & c grade offices.

hiStOrical rental rate in three main lOcatiOnS, Q1 2009 – Q4 2010


in Q4 2010, rental rates for office buildings in the cBD area remained fallen the outer cBD has risen slightly and has now overtaken the
more or less the same when compared to Q4 2009. overall rental rates northern fringe.
have remained stable, but in this quarter while the northern fringe has



hiStOrical rental rate By grade


rental rates of grade a office buildings have remained stable since 2007 and this has likely adversely affected grade c rentals. the increasing age
while grade B office buildings recorded a drop of approximately 5 – 6%. of grade c buildings is also likely to become noticeable as image and
colliers international thailand has noticed that some landlords have facilities may be increasingly unfavourable to tenants, and owners could
offered more favourable terms and incentives for tenants to maintain be considering significant renovations in the same fashion as the retail
occupancy during difficult economic times, especially for small businesses sector in order to maintain competitiveness.

rental rate Of Office Building in BangkOk By diStance frOm BtS / mrt (metreS)


offices located close to mass transit stations command a premium with around a 40% difference being registered. Mass transit only explains
although many are newer buildings that would there for be usually more part of an office building’s appeal. access to expressways may be equally
expensive to rent. the sharpest difference occurs in grade c buildings or even more important for tenants.



Office ZOning

the average Occupancy rate Of Office Building On phetchaBuri and rama 9 rOad alOng the line
Of airpOrt rail link By Quarter.


the average occupancy rate of office Building along the airport rail Link day and future growth is foreseen in the future. Businesses where staff
increased in Q3 of 2010 which is likely to result of the opening of the often travel abroad may find an office location close to the line convenient
latest mass transit line in the area. the airport Link was official opened for their operations.
on 23 august 2010 from the statistics of State railway of thailand now
city Line of the airport Link registers more than 42,000 passengers per

the average rental rate Of Office BuildingS On phetchaBuri and rama 9 rOad alOng the line
Of airpOrt rail link By Quarter.


rental rates were stable in Q4 2010 but still lower than the rental rates area and some areas on Phetchaburi road.
in the second quarter by approximately 2% due to the protest in the cBD



fOrecaSt

at the end of 2010, offices@Sivatel, a mixed use building in the outer More than 87 % of office space in Bangkok were completed before the
cBD area, provided more than 5,600 sq m to the market. this represents year 2000 and 14% are over 20 years old, therefore many building
the only supply to the office market in 2010. However, in Q1 2011, Sathorn owners are considering basic refurbishment. for buildings older than 20
Square will add more than 70,000 sq m in the cBD. this will affect years the case for more extensive renovation becomes more pronounced
demand, supply and rental rates in the cBD area and due to its large floor involving significant changes to the façade/curtain wall and even
plate, widen the discount provided to large size office users to either retrofitting of elevator and air conditioning systems. these changes can
renew leasehold contracts or encourage them to relocate. have important cost savings for tenants due to greater efficiency. as a
result of this factor and an improved image, such makeovers can lead to
However the Bangkok market in general over the next few years is likely an upgrade and higher rentals. However the floorplate of the existing
to witness only a very limited amount of new supply and with take up building and location should be taken into account and it will harder for
even at modest level this is likely be a positive for occupancy rates over multi-owner buildings to have such a change affected.
time.

the trend in thailand is for the economy to recover, as seen from its
increasing gDP and exports, and limited action has been taken to boost
the service sector such as regional operating Headquarters. as thailand
moves toward a more integrated service sector within aSean there are
many concerns that the country may miss out on a potential windfall of
opportunity due to a poor education system, limited foreign language
skills, lack of competition and few tangible incentives for fDi in the
services sector.



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thailand thailand
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Bangkok Office Market Report Q4 2010

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