Bangkok Office Market Q2-2010

The Knowledge Reportc o l l i e R s i n T e R n aT i o n a l | T H a i l a n D

executive summaryNo new office supply came onto the market in Q2 2010 and only very limited supply will be expected until Q4 2010 with the scheduled opening of Sathorn Square.

Very little relocation activity in Q2 reflecting the ongoing political impasse deterring companies from making long term plans.

Occupancy rates fell by about 1% in every area including the CBD, Outer CBD and the Northern Fringe.

Rental rates remained more or less the same in the CBD for Q2, 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.

As of June 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.

office Zoning

The general lack of zoning restrictions in Bangkok has led to the existence of significant office sup-ply 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. While Sukhumvit road up to Asoke is primar-ily 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.

MaRKeT inDicaToRs

Q1 2010 - Q2 2010

new sUPPlY

DeManD

RenTals

occUPancY

www.colliers.co.th

B a n g Ko K o f f i c e M a R K e T | 2 n D Q U a RT e R | 2 0 1 0

collieRs inTeRnaTional2

The Knowledge Report | 2nd Quarter | 2010 | Bangkok Office Market

Zoning

collieRs inTeRnaTional 3


HisToRical sUPPlY

Source: Colliers International Thailand ResearchRemark : E = Estimated supply

Source : Colliers International Thailand Research

The office market landscape even today is a result of a five year boom period from 1992 to 1996 prior to 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 remains 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 the first half 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.

cUMUlaTive sUPPlY in BangKoK

aDDiTional sUPPlY foR eacH YeaR


Regional coMPaRison

The diffuse nature of the Bangkok office market is highlighted by a comparison with other countries in the region. A much greater

proportion of office space is located outside the CBD.

Almost all office space is located in Bangkok itself with only a negligible amount in the regions. Most office functions outside of Bangkok take place in shophouses and townhouses in similar fashion to Phnom Penh in Cambodia. This contrasts with other Asian countries which have offices located in other parts of their country such as Cebu in Philippines, Surabaya in Indonesia,

Penang in Malaysia and Busan in Korea. Pattaya may emerge as a secondary office location in the future although this will be dependent on incentives by the Board of Investment to stimulate the service sector outside of Bangkok.

Cebu (Philippines) 450,000 sq m of office space for BPO marketDa Nang (Vietnam) 60,000 sq m [also 2 main cities]Surabaya (Indonesia) About 12 office buildingsBandung (Indonesia) About 5 office buildingsPenang (Malaysia) Over 1 million sq m office spaceJohor Bahru (Malaysia) Approx 560,000 sq m

Source : Colliers International Thailand Research /Colliers International Country Offices

Source : Colliers International Thailand Research /Colliers International Country Offices

ToTal sTocK of office BoTH cBD/non-cBD in selecTeD asia-Pacific coUnTRies

office sPace in seconDaRY locaTions in soUTH easT asia



office siZe


aveRage siZe of office BUilDing accoRDing To aRea

The Outer City West has the highest average size in Bangkok but due to the limited number of offices in this area, one build-ing; the Thai Farmers Bank Head Office, with over 74,000 sq m of NLA, raises the average somewhat. The CBD comes in sec-ond place largely due to the number of grade A office buildings containing a large floor plate and consequently greater building size. The smaller sizes reflected in the Outer CBD reflects the

space limitations and smaller, older buildings located in west Silom and Surawongse. One notable feature is the smaller sizes in the Outer City East. In many Asian cities large office buildings are located outside the centre in order to accommodate the BPO industries which often require a large floor plate but low rentals. This appears not to be the case in Bangkok.





sUPPlY BY owneRsHiP, Q2 2010

fUTURe sUPPlY BY locaTion

A significant number of offices are multi-owner in what are also referred to as office condos. Almost all of these were built pri-or 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 advantages of occupying multi-owner office such as separate air conditioning systems which are cost effective for companies operating in non-working hours. How-

ever there are disadvantages in the form of sometimes uncoordi-nated property management and more expensive air condition-ing systems for companies using office space predominantly in working hours. However occupancy rates are in general higher in multi-owner offices.

Two office buildings are scheduled to be completed in 2010 with one building located in the CBD area and another just outside in the Outer CBD area. The total area of office space will rise by 79,000 square meters representing an increase of around 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.

sUPPlY BY owneRsHiP

fUTURe sUPPlY



The Outer City West area still commands the highest occu-pancy rate for Q2 2010, and the Southern Fringe has the lowest

occupancy rates. The CBD occupancy rate recorded the second lowest figure.

The occupancy rate in the CBD area dropped by approximately 0.4%, while the outer CBD area fell by 0.2%. However during the protest at Rajaprasong intersection numerous office build-

ings around the area closed their doors, but after the political disturbances ended, the occupancy rate still remained the same as the last quarter.



occUPancY RaTe BY locaTion, Q2 2010

occUPancY RaTe in 3 locaTions, 2001 - Q2 2010

DeManD - TaKe UP



newlY RegisTeReD fiRMs DURing JanUaRY 2009 - MaY 2010

Source : Department of Business Development and Colliers International Thailand Research

DeManD DRiveRs

BUsiness conTingencY Planning

Regional oPeRaTing HeaDQUaRTeRs (RoH)

January 2010 recorded a surge in company registrations but this was followed by a steep downturn and has remained low during the April and May disturbances.

The events of April and May 2010 raised the awareness of companies of the need to develop contingency plans in order to reduce the disruptions resulting from disturbances either natural or man-made. One key area regards location and the fact that most companies operate in only one office location. Many offices had to close their doors during the demonstrations and business activity was severely curtailed or even suspended in many cases. A large number of companies operated briefly from temporary back up offices and many are now considering using a perma-nent back up office in order to provide a speedier response. Other options include the use of service centres or even operating from two separate locations in which both would act as parallel back up offices.

Each plan would represent a stimulation of demand for office space. However each would also increase the costs of doing business in Bangkok and such contingency planning would likely only take place in the event of protracted disturbances which is by no means certain. As such the increase in demand that would result would represent a silver lining to the dark cloud of businesses closing down and foreign enterprises fleeing the country.

The government needs to restore country’s image and attract foreign investment after the political problem affecting the investment climate in the country. The government approved new tax incentives for Thai and foreign firms setting up region-al headquarters in Thailand. Zero corporate tax rates apply to income earned for services provided to companies outside Thailand and 10% corporate tax rate for income from domestic services for 15 years. Also included is a reduced personal income tax rate of 15% for eight years for expatriates working in ROHs. The lower personal tax rate applies only for ROHs that gener-

ate at least half of their income from services provided to firms outside of Thailand. Although this improvement will likely lead to some companies headquartering in Bangkok, other factors such as poor English skills and ongoing political unrest act as a strong deterrence. Hong Kong and Singapore look set to remain the preeminent regional centres for the foreseeable future.



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. After a dramatic drop in exports starting at the end of 2008, they have started to recover in the last three quarters. This bodes well for future

demand for office space although ongoing financial problems in Europe and the general retrenchment of fiscal stimulus in the majority of Thailand’ exports partners could spell many problems, exacerbated by foreign currency weakness of the Euro and other trading currencies.

Unsurprisingly the CBD commands the highest rental rates due to the location and the number of grade A buildings. Rents in the Northern Fringe are considerably higher than the Outer CBD. This could be explained by the fact that a significant num-ber of offices are located close to both the BTS and MRT lines in the area while most offices in the Outer CBD are located some

distance from mass transit lines. While Colliers International Thailand have research that shows that condominium prices are generally higher the closer they are to mass transit stations, the same also seems to be the case for offices. Being located near a mass transit station is preferable for both employees and business visitors alike.

exPoRTs fRoM THailanD on QUaRTeRlY Basis

Colliers International Thailand Research Source : Bank of Thailand


RenTal RaTe BY Zone

RenTal RaTe



Grade A offices have greater rental rates than those of grade B. The difference between grade B and C is rather small reflecting

that competition between these grades is intense and tenants see less distinction between the two.

In Q2 2010, rental rates for office buildings in CBD area fell slightly by 0.3% compared to Q4 2009. Rates fell more sharply

in the Northern Fringe but this was likely to be a correction after the steep rise in the previous year.

RenTal RaTe BY gRaDe Q2 2010

HisToRical RenTal RaTe in 3 Main locaTions, 2001 - Q2 2010





HisToRical RenTal RaTe BY gRaDe

Rental rates of grade A office building have remained stable from 2007 while grade B recorded a small drop. Colliers International Thailand has noticed that some landlords have offered more

favourable terms for tenants to maintain occupancy during difficult economic times, especially for small businesses.




foRecasT

Due to the three year leasing term contracts and costs of relocating office, it remains to be seen whether the events of April and May 2010 in the CBD area will affect occupancy in this location in the future as tenants may wish to locate to lower profile zones. Further disruptions in Bangkok could go some way in shaping the direction of the office market, depending on how they manifest themselves and in which locations.

There would appear to be pent up demand for office space but remains subdued due to the ongoing political tensions that could unleash into fresh disturbances and violence. While this situation remains the office market will remain stagnant as tenants hold off on strategic planning and landlords provide favourable conditions for contract extension.

The limited amount of new supply over the past year has allowed rentals and occupancy to remain firm in this current environment. However with the introduction of over 70,000 sq m of office supply in the CBD for Q4 2010, this will likely provide challenges for older grade A buildings as high profile companies are attracted to newer office buildings. Expect landlords in the CBD to go further in enticing tenants to renew contracts that expire over the next year.



conTacT infoRMaTion

THailanD: Patima Jeerapaet Managing Director [email protected]

Narumon Rodsiravoraphat Head of Commercial [email protected]

Antony Picon Senior Manager | Research [email protected]

Surachet Kongcheep Manager | Research [email protected]

This report and other research materials may be found on our website at www.colliers.co.th. Questions related to information herein should be directed to the Research Department at the number indicated above. This document has been prepared by colliers international for advertising and general information only. colliers international makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. any interested party should undertake their own inquiries as to the accuracy of the information. colliers international excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. colliers international is a worldwide affiliation of independently owned and operated companies.

480 offices in 61 coUnTRies on 6 conTinenTs

Us$ 1.9 Billion in annUal RevenUe 1.1 Billion sQUaRe feeT UnDeRManageMenT 15,000 PRofessionals

Colliers International Thailand

Bangkok Office : 17/F Ploenchit Center, 2 Sukhumvit Rd. , Klongtoey, Bangkok 10110 Tel: 662 656 7000 Fax: 662 656 7111 Email : [email protected] Pattaya Office : 519/4-5, Pattaya Second Road (Opposite Central Festival Pattaya Beach), Nongprue, Banglamung, Chonburi 20150Tel: 6638 364 411-2 Fax: 6638 364 414Email : [email protected]

www.colliers.co.th

collieRs inTeRnaTional THailanDManageMenT TeaM

ASSET MANAGEMENTWasan Rattanakijjanukul | ManagerNukarn Suwatikul | Manager

CONSULTANCYNapart Tienchutima | Manager

COMMERCIAL / INDUSTRIAL /RETAILNarumon Rodsiravoraphat | Senior Manager

FACILITY / PROPERTY MANAGEMENTViroj Piromthong | Management AdvisorBandid Chayintu |Associate Director

HOSPITALITY DIVISIONJean Marc Garret | Director

INVESTMENTNukarn Suwatikul | Senior Manager

RESIDENTIALPatima Jeerapaet | Managing Director

RESEARCH & ADVISORYAntony Picon | Senior ManagerSurachet Kongcheep | Manager

VALUATIONNicholas Brown | Associate DirectorPhachsanun Phormthananunta |Manager

PATTAYA OFFICEMark Bowling | Sales ManagerSupannee Starojitski |Business Development Manager


Documents

Bangkok Office Market Q2-2010