Picture (left): Chamchuri Square’s biggest coup was securing a deal with DTAC for 61,500 square metres.
Bangkok office rents and occupancy rates will contract by 10% in 2009 due to decreasing demand, new supply and major tenant relocations, says the property consultancy Colliers International Thailand.
The global recession affected Bangkok's office market in the last quarter of 2008, dampening what had otherwise been a strong year, said the firm's head of research, Risinee Sarikaputra.
Many companies that had previously scheduled office expansions cancelled their plans, with some downsizing or relocating instead.
"Tenants at some office buildings have united to press for lower rentals at renewal, and they have achieved up to a 10% reduction," she said.
"It's a tenants' market. They have higher bargaining power, while office landlords need to get existing tenants to stay by lowering rents."
Occupancy rates have fallen fastest in Grade A offices in the central business district (CBD), which have dropped to 80%, down from 89% at the end of last year. This was largely due to cost-cutting from tenants, especially multinational companies.
Grade B office space in the CBD is expected to fall by 5-6% this years, as the sector will absorb many of the relocations from Grade A offices.
The average Grade A rent is 700 baht per square metre, with Grade B fetching 590 baht.
Many firms have relocated from Grade A to Grade B properties, or to other locations with lower rents.
While some securities firms upgraded their offices, large corporations in other sectors, such as automotive and exports, have downsized to control costs, Ms Risinee said.
The Silom area had the biggest outflow of tenants, many of whom complained about high rents, run-down offices, and congested traffic.
Some tenants moved to serviced offices with higher rents so they could assess the situation before moving to a more permanent location, she said.
Government agencies have started to relocate to the new government centre on Chaeng Watthana since early this year. This has a significant impact on Bangkok office space, which now totals 7.76 million sq m, with 90% occupancy.
According to Colliers' research, new office supply in the pipeline scheduled for completion in 2009 amounts to 849,762 sq m, with 470,000 sq m at the new government centre.
Government agencies will vacate around 100,310 sq m of space in commercial buildings. The biggest tenant to move is the Office of the Election Commission, which will leave the Srijulasarp Building on Rama I Road for a new 48,330 sq m space at the new government centre.
The Office of the Ombudsman moved from the Exim Bank Building on Phahon Yothin road for a new 11,790 sq m space. The Central Bankruptcy Court will shift from the Bangkok Insurance building on Sathon Road to its new 9,280 sq m location.
The biggest office transaction in the fourth quarter of last year was the DTAC move to a space covering 61,500 sq m at Chamchuri Square, followed by ACE INA Overseas Insurance new 9,600 sq m location at at Interchange 21. Tilleke & Gibbins took up 8,500 sq m at Supalai Grand Tower. Tisco Bank occupied 5,000 sq m at Pakin Tower. And Deutsche Bank moved to a 4,000 sq m office at Athe'ne'e Tower.
The annual net take-up of office space has declined since 2004, decreasing by an annual average of 10%.
However, rent and occupancy rates are expected to pick up by 2-3% in 2010 due to a limited new supply of only 70,000 sq m coming online at Sathon Square, which is developed by Golden Land Property.
The twin effects of the global economic recession and political instability in Thailand will slow the overall office market.
While relocation costs deter many tenants from moving, increasing numbers are expected to push for lower rentals at renewal. New projects are already offering substantial discounts of 10-15% to secure major tenants and ensure occupancy rates.
Grade A office rents in the inner CBD ranged from 580-750 baht per sq m at the end of 2008, with a current average of 700 baht. Grade B offices in the inner CBD ranged from 300-700 baht but the average is now 590 baht.
Source: Bangkok Post 23 April 2009
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