Knight Frank Thailand Reveals Bangkok Office Market at High Occupancy Level while Limited Supply Forcing Price Levels Up

Knight Frank Thailand has pointed out that the overall Thai economy in the first quarter of this year showed an impressive GDP growth rate, mainly due to an increase in the government’s expenditure on infrastructure development and upgrades. Despite this, the overall perception of Thai economic performance remained frail. Whether this has an effect on businesses’ demand for office space would depend heavily on the outcome of the upcoming general election, scheduled for 2017, along with the state of the global economy, which heavily influences the outcome of Thai business performance.

 

On the supply side, the newly agreed 50-year lease of a site in Silom has also set a precedent for plots previously deemed financially unsuitable for development. We also see a growing list of future office supply in Bangkok. We expect the office market supply to finally catch up with growing demand over the next few years.

 

Mr. Marcus Burtenshaw, Executive Director and Head of Commercial Agency Department, Knight Frank Thailand, Co., Ltd., said, “Bangkok’s commercial property market is currently one of the strongest performers in the Thai real estate sector. We are starting to see many of the well-known residential developers shifting their focus to commercial property. By the end of this year, a total commercial space of 163,604 sq.m. would be added to the market.”

 

According to Knight Frank Thailand Research, in the second quarter of 2016, the Bangkok office market had a high occupancy level of 92.1%. The limited supply forced the price levels to go up. However, developers were reacting, with up to 288,000 square metres soon to be introduced to the market over the next couple of years.

 Figure 1: Bangkok Office Supply and New Supply from 2011-Q2 2016.

INFO Bangkok Office Report Q2 2016-01

Source: Research and Consultancy Department, Knight Frank Thailand

 

The current office supply in Bangkok at Q2 2016 stood at 4,723,862 square metres, a net addition of 28,705 square metres from the previous quarter, reflecting the launch of two new buildings, M Tower (Sukhumvit 62) and The Metropolis (Sukhumvit 39), both in prime but non-CBD locations. So far, as of Q2 2016, all of the new office buildings being launched were located out of the traditional Bangkok CBD areas but all of them are located in areas that are quickly emerging to become new business sub-districts of their own, such as the mid-Sukhumvit and mid-Rama IV areas. We currently do not expect any additional supply within the CBD areas until early 2017 when we would see the launch of Bhiraj Tower on Sathorn Road.

 

Figure 2: Bangkok Office Future Supply

TABLE1

Source: Research and Consultancy Department, Knight Frank Thailand

Regarding demand, research revealed that the total occupied space for Bangkok offices stood at 4,350,130 square metres or approximately 92.1% of the total supply in the market, representing the highest occupied space in our recorded data. Grade A categories registered a small reduction in occupancy, in particular in the Non-CBD regions, but this was a result of an increase in supply rather than a reduction in demand for office space.

 

Overall, the occupancy rate for the office market in Q2 2016 shrank by 0.2% on a quarter-on-quarter basis but grew 1% on a year-on-year basis. The Non-CBD Grade A market showed the strongest year-on-year occupancy growth at 4.8%.

 

When comparing the change in supply against the change in demand over the past few periods, it is found that, for the most periods in the past four years, office space take-ups were greater than the introduction of new supply. So far in 2016, however, this period marks the second time since 2012 where new office supply outgrew the take-ups.

 

Figure 3: Bangkok Office Demand against Supply, 2011 – Q2 2016

INFO Bangkok Office Report Q2 2016-03

Source: Research and Consultancy Department, Knight Frank Thailand

 

The average asking rental rate for office space in Q2 2016 was around 726 baht per square metre per month, a quarterly growth of 2.2% from an average of 711 baht per square metre per month in the previous quarter. The asking rent increase over the same period last year was at 7.6%.

 

Based on the pricing trend, the CBD Grade A office spaces would continue to outperform the rest of the categories significantly whilst the Non-CBD Grade A office spaces’ asking rent is diverging away from the remainder of the categories — and slowly creeping closer to their CBD counterparts.

 

The property with the highest commanding asking rent is Park Venture on Ploenchit Road at 1,400 baht per square metre per month, closely followed by Exchange Tower, Siam Tower and Ramaland Building, all of which listed their asking rent at 1,200 baht per square metre per month, according to Knight Frank Thailand Research. 

 

Figure 4: Bangkok Asking Rent by Grade and Location, 2011- Q2 2016

INFO Bangkok Office Report Q2 2016-05

Source: Research and Consultancy Department, Knight Frank Thailand

 

Figure 5: Asking Rent by Major Roads at Q2 2016.

INFO Bangkok Office Report Q2 2016-06

Source: Research and Consultancy Department, Knight Frank Thailand