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Q4 2013Office marketreport
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• DemandforBangkok’sofficespacegrewinthe4thquarterof2013,despitedecliningbusinessconfidence.
• InQ42013,theonlynewsupplythatenteredthemarketwasWingAoftheGrand9thTower
• SeveralGradeAofficebuildingsarebeingconstructedorplannedintheNewBusinessDistrict,closetotheRama9–Rachadapisekintersection.
• Theaveragerecordedofficeoccupancyratebrokethe90%levelforthefirsttimein6yearsat90.25%,whichincreasedfromthelastquarterby0.64%and2.76%year-on-year.
• RentalratesacrossallofficegradesincreasedagaininQ4,especiallytheGradeAofficesectorthatsawrentsgrowby6.89%yearonyear.
highlights
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Q4 2013OfficE Marketreport
marketoverview
Remarks: *economic growth in 2014 is a projected data.
Source: National Economic and Social Development Board, IMF, World Bank, Bank of Thailand and Asian
Development Bank
DespiteunrestinBangkok,GradeAofficerentsgrewby1.7%overthequarter,given39,000sq.m.ofnetabsorptionandafallingvacancyrate.Althoughtheuncertaintycausedbyongoingeventsislikelytosoftendemandoverthecomingmonths,thelackofnewsupplyislikelytounderpinfurtherrentalgrowthin2014.
Figure1
TheThaieconomygrewat2.6%in2013buteconomicheadwindsstemmingfromthepoliticaluncertaintyremainstrong,whichpromptedanalystsinJanuarytoforecastgrowthratesfor2014between3.6%and4.9%(projectedbyIMF:3.6%,WorldBank:4.5%,BankofThailand:4.8%andAsianDevelopmentBank:4.9%),butthesemaybereviseddownwardshouldthepoliticalcrisisdragon,withmorerecentestimatesindicatinggrowthofbetween2to3%.
www.KnightFrank.co.th
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Figure2Business Sentiment Index
Source: Bank of Thailand
Remarks:
1/ Business Sentiment Index is compiled from BOT survey data of 1,010 businesses.
2/ Below is the interpretation of the index:
Index = 50 indicates that business sentiment remains stable.
Index > 50 indicates that business sentiment has improved.
Index < 50 indicates that business sentiment has worsened.
TheBusinessSentimentIndex(BSI)dippedtoitslowestpointintwoyearsinDecember2013afterrecoveringfromthefloodsof2011,signallingconcernfromentrepreneursandinvestorsoverdomesticconsumption,householddebts,currencyfluctuation,andunfavourabletensionfromtheongoingpoliticalsituation,whichislikelytocausedelayinpreviouslyannouncedprivateandpublicinvestment.However,despitetheconditions,theBangkokofficemarkethasremainedoneoftheleastvolatileintheAsiaPacificregion.Demandforofficespacehasbeengrowingsteadilysince2011,pushingrentsclosertorecordlevelswithvacanciesratesfallingacrossthemarket.Whilethismaysoftenduetopoliticaluncertainty,limitedsupplyislikelytocontinuetopushrentshigher,albeitataslowerrate.
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Q4 2013OfficE Marketreport
Figure3Prime Office Rents
Figure4Asia-Pacific Prime Office Rents, Q4 2013
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Figure5Office Market
Source: Knight Frank Thailand ResearchNote: These figures exclude multi-owner occupied premises and office buildings smaller than 5,000 sq.m.
Onlyonenewbuilding,WingAofthe9thToweronRachdapisek,wascompletedthisquarter,increasingthetotalofficesupplyby23,530sq.m.to4,474,227sq.m.
SUpply
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Q4 2013OfficE Marketreport
future supply Weexpecttoseeanadditional149,735sq.m.ofofficespaceentertheBangkokmarketin2014.
Table1
Future SupplyLettable Space (sq.m.)
Completion Location Zone
The9thTowerB 23,530 Q12014 Rama9 Non-CBD
Equinox 19,205 Q22014 Paholyothin Non-CBD
AIACapitalCenter 54,000 Q32014 Ratchadapisek Non-CBD
BHIRAJToweratEmQuartier 47,000 Q42014 Sukhumvit Non-CBD
MagnoliaRatchadamriBoulevard
6,000 Q32014 Ratchadamri CBD
G-LandTower 65,630 Q42015 Rama9 Non-CBDGoldenLandRamaIV 48,071 Q42015 Ratchadapisek-RamaIV Non-CBDAIASathorn 38,500 Q12015 Sathorn CBDBHIRAJToweratBITEC 31,880 2016+ Bangna Non-CBDGaysornII 30,000 2016+ Rajdamri CBDAseanMediaComplex 80,000 2016+ Ratchadapisek Non-CBDUnnamedProjectbyMajorDevelopment
15,000 2016+ Sukhumvit Non-CBD
BHIRAJToweratSathorn 30,000 2020+ Sathorn CBD
Source: Knight Frank Thailand Research
Note: The new supply is exclusive of the office buildings that were built and occupied by the owners.
Wedefinethe‘CBD’as“thelocationwiththegreatestconcentrationofretailandGradeAofficebuildings”.InBangkokthis‘boot’shapedareaisanchoredbyLumpiniPark,borderedbyPloenchittothenorth;Wirelesstotheeast;andRachadamritothewest,includingRama4,Silom,SathornandNarathiwasroadstothesouth-west.
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Figure7Occupancy by gradeDemand
Figure6Future Supply
Source: Knight Frank Thailand Research
Source: Knight Frank Thailand Research
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Q4 2013OfficE Marketreport
Table 2
Occupancy Rate (%)
Grade A B C Overall
Q12013 87.37% 89.41% 88.40% 88.23%
Q22013 87.40% 90.84% 89.06% 88.81%
Q32013 88.62% 91.75% 89.38% 89.61%
Q42013 89.69% 91.96% 89.82% 90.25%
Q-o-Q 1.07% 0.21% 0.44% 0.64%Y-o-Y 3.99% 2.82% 1.49% 2.76%
Source: Knight Frank Thailand Research
InQ4,occupiedspaceincreasedto4,038,166sq.m.,bringingtheoverallofficeoccupancyrateto90.25%,anincreasefromthelastquarterof0.64%and2.76%fromlastyear.TheGradeBsectorhadthehighestoccupancyrateswithjust8.04%ofavailablespace,afteroccupancyratesclimbed0.21%inthethirdquarter.Thisquarter,GradeAofficespacewasdemandedthemostofallgrades,withanapproximately4%increase.
Table 3
Office Rental Rate (THB/sq.m./month)
Grade A B C Overall
Q12013 669.72 542.98 411.29 541.33
Q22013 676.63 552.98 415.31 548.30
Q32013 685.16 555.45 419.19 553.27
Q42013 696.94 559.53 423.30 559.93
Q-o-Q 1.72% 0.73% 0.98% 1.20%Y-o-Y 6.89% 3.80% 4.34% 5.20%
Source: Knight Frank Thailand Research
Officerentsincreasedby5.2%YoY,andtherehasbeenarentalupliftinallofficegradesinQ4.ThehighestincreasewasintheGradeAsegment,whichsawrentsclimbby1.72%inQoQor6.89%YoY.ThiswasfollowedbyGradeCandGradeBrentgrowthat4.34%and3.80%,respectively.
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Figure8Inflation Rate vs Office Rental Growth
Source: Bureau of Trade and Economic indices Ministry of Commerce and Knight Frank Thailand Research
Amongstthedecliningtrendoftheinflationratein2013,theaverageofficerentalgrowthincreasinglyoutpacedtheinflationrate,asvacancyratescontinuetodropinallsegmentsofthemarket.
Rents by Location
TheCentralBusinessDistrictisdefinedas “the area within the city that has the greatest concentration of prime commercial buildings”. InBangkok,thisareaisbroadlydefinedasa‘bootshaped’areabetweenSilomtoSathorn,andRajadamriandWirelessRoadsalongPloenchitandRamaI.
PloenchitandWirelessRoadscommandthehighestofficerentsinBangkok,wherethehighestrentfetchmorethan1,000baht/sq.m./monthwithapotentialrentalgrowthofupto7.76%YoY.Amongstnon-CBDareas,Sukhumvit–AsokeisaprimelocationwiththecapabilityofcommandingrentashighastheCBDlocation;thehighestratesareover900baht/sq.m./monthata8.18%YoYgrowthrate.
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Q4 2013OfficE Marketreport
outlook In2010,veryfewofficetenantsleftthemarketordownsizedtheiroperations.Assuch,theBangkokofficemarketwasabletoweatherthatrelativelyshort-livedpoliticalstorm.
Ratherthanleavingduringtimesofuncertainty,officetenantsinBangkokhavetendedtorevisittheirexpansionandinvestmentplans,oftentakinga‘waitandsee’approach,whichtapersdemand.
Fallingvacancyratesandlimitednewsupplyshouldcontinuetosupportfurtherrentalgrowthin2014,eveninthewakeofsofterdemandduetothepoliticaluncertainty,solongasthecountryisabletoextricateitselffromthispoliticalmaelstrominthenearterm.
ThefollowinggraphshowstherangeofofficerentsbylocationacrossBangkok:
Figure9Rent by Major Roads
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