Bangkok Office Market Report Q4 2010

2009 - 2010

Supply

demand

rentalS

Occupancy

Bangkok office Market rePort

thailand

www.colliers.co.th

Bangkok Office Marketexecutive SummaryLimited 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.

occupancy rates remained the same as in Q3 2010 albeit with variances by zone. the outer cBD 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.

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 2009. indications are that landlords are offering steeper discounts and incentives to maintain large floorplate tenants.

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.

year end 2010 | OFFICe

market indicatOrS

BangkOk OFFICe Market rePOrt | Q4 2010

COLLIERS INTERNATIONAL | P. 2

Office ZOning

the general lack of zoning restrictions in Bangkok has led to the existence of significant office supply 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 in the nineties, with a larger floor plate 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 primarily 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 now considered the outer cBD as well as Petchburi road where more grade B offices are located. over time this structure could evolve.

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 the period 1992 to 1999 which ended due to launches coming to a halt as a result of the afc. even after the crisis projects continued to be 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 following five years were a fallow period for the office market as a total of only around 186,000 sq m was completed. it was only in the second

half of the decade that growth in supply picked up with over four and a half times more supply being added in the last five years compared to the first five.

no new supply came to the market during Q1 – Q3 of 2010. However in Q4 2010 one new office building was completed in the outer cBD area with a total area of around 5,600 sq m.


the chart shows how supply has fared since the effects of the afc. the pick up began in 2004 and culminated in over 250,000 sq m of additional supply in 2008 on the back of renewed confidence in the middle of the decade. However political uncertainty along with the global financial

crisis (gfc) has led to a reduction in new supply. one office building was opened in 2010, in the outer cBD area. the total office space area has risen by nearly 6,000 sq m representing a very modest increase of less than 0.1% of current supply.

the cBD area represents the biggest share of office building market on Bangkok with around 35% of total supply, followed by northern fringe

area and outer cBD area with 19% and 15% respectively.



additiOnal Supply fOr each year

Supply By lOcatiOn, Q4 2010


future Supply By lOcatiOn



Sathorn Square, scheduled to open in Q1 2011, will represent the largest office tower in the cBD since empire tower in 1999. three office buildings are scheduled to be completed in the northern fringe area during the 2011 – 2013 periods. overall expected additional new supply

over the next three years will represent a less than 2% increase in total supply. this represents very little additional space for the market to absorb.


future Supply

Occupancy rate By lOcatiOn, Q4 2010


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

northern fringe occupancy rate recorded the second lowest figure.

demand – take up

the occupancy rate in the cBD area made a slight improvement from the previous quarter with a nearly 1% move upwards q/q, although this is likely to be adversely affected by the advent of Sathorn Square, due in Q1 2010. the northern fringe occupancy fell 1% q/q and outer city east by

around 1%. the outer cBD increased by just less than 1% although at this point in time the airport Link would have no real effect on this change.

January 2010 recorded a surge in company registrations though the april /May events led to a downturn, but after that period registrations picked up and november has shown a highest number in last two years. from figures released by the Department of Business Development the

number of company registrations in 2010 for the whole thailand is the highest in 99 years, which represents a positive signal for the office building market.


Source: Department of Business Development and colliers international thailand research

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

newly regiStered firmS during January 2009 - nOvemBer 2010



demand driverS


expOrtS frOm thailand On a mOnthly BaSiS

rental rate By ZOne

Source: Bank of thailand and colliers international thailand research

Source: colliers international thailand research

industrial growth is the main driver that powers the office market as it leads to the need for trading, financial, legal and insurance services, amongst others, to support it. exports started to recover from the gfc in

2009 with a steady pattern of growth despite setbacks from political disturbances. in october export value fell in September by just less than 8% and then remained stable in the last two months of 2010.

Unsurprisingly the cBD commands the highest rental rates due to the location and number of grade a buildings. rents in the eastern fringe dropped as in the outer city east while increases were recorded in the Western fringe and northern fringe areas. this could be explained by

the fact that a significant number of offices are located close to both the BtS and Mrt while most offices in the outer cBD are located some distance from mass transit lines and many are relatively old.


rental rate, Q4 2010


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


rental rate By grade Q4 2010


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

fallen the outer cBD has risen slightly and has now overtaken the northern fringe.


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



hiStOrical rental rate By grade

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



rental rates of grade a office buildings have remained stable since 2007 while grade B office buildings recorded a drop of approximately 5 – 6%. colliers international thailand has noticed that some landlords have offered more favourable terms and incentives for tenants to maintain occupancy during difficult economic times, especially for small businesses

and this has likely adversely affected grade c rentals. the increasing age of grade c buildings is also likely to become noticeable as image and facilities may be increasingly unfavourable to tenants, and owners could be considering significant renovations in the same fashion as the retail sector in order to maintain competitiveness.

offices located close to mass transit stations command a premium although many are newer buildings that would there for be usually more expensive to rent. the sharpest difference occurs in grade c buildings

with around a 40% difference being registered. Mass transit only explains part of an office building’s appeal. access to expressways may be equally or even more important for tenants.



the average occupancy rate of office Building along the airport rail Link increased in Q3 of 2010 which is likely to result of the opening of the latest mass transit line in the area. the airport Link was official opened 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

day and future growth is foreseen in the future. Businesses where staff often travel abroad may find an office location close to the line convenient for their operations.

rental rates were stable in Q4 2010 but still lower than the rental rates in the second quarter by approximately 2% due to the protest in the cBD

area and some areas on Phetchaburi road.



the average Occupancy rate Of Office Building On phetchaBuri and rama 9 rOad alOng the line

Of airpOrt rail link By Quarter.

the average rental rate Of Office BuildingS On phetchaBuri and rama 9 rOad alOng the line

Of airpOrt rail link By Quarter.

Office ZOning


at the end of 2010, offices@Sivatel, a mixed use building in the outer cBD area, provided more than 5,600 sq m to the market. this represents the only supply to the office market in 2010. However, in Q1 2011, Sathorn Square will add more than 70,000 sq m in the cBD. this will affect demand, supply and rental rates in the cBD area and due to its large floor plate, widen the discount provided to large size office users to either renew leasehold contracts or encourage them to relocate.

However the Bangkok market in general over the next few years is likely to witness only a very limited amount of new supply and with take up even at modest level this is likely be a positive for occupancy rates over 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.

More than 87 % of office space in Bangkok were completed before the year 2000 and 14% are over 20 years old, therefore many building owners are considering basic refurbishment. for buildings older than 20 years the case for more extensive renovation becomes more pronounced involving significant changes to the façade/curtain wall and even retrofitting of elevator and air conditioning systems. these changes can 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 an upgrade and higher rentals. However the floorplate of the existing building and location should be taken into account and it will harder for multi-owner buildings to have such a change affected.

fOrecaSt


cOllierS internatiOnal thailand management team

office & inDUStriaL SerViceSnarumon rodsiravoraphat | Senior Manager retaiL SerViceSasharawan Wachananont | Senior Manager reSiDentiaL SaLeS & LeaSingnuttaya Junhasavasdikul | Manager ProJect SaLeS & MarketingWasan rattanakijjanukul | Manager

aDViSorY SerViceSnapatr tienchutima | Manager

reaL eState ManageMent SerViceSBandid chayintu | associate Director

aDViSorY SerViceS | HoSPitaLitY Jean Marc garret | Director

inVeStMent SerViceSnukarn Suwatikul | Senior Manager

reSearcHantony Picon | Senior ManagerSurachet kongcheep | Manager

VaLUation & aDViSorY SerViceSnicholas Brown | associate DirectorPhachsanun Phormthananunta | Manager

PattaYa officeMark Bowling | Sales ManagerSupannee Starojitski | Business Development Manager

COLLIerS InternatIOnaL thaILand:

Bangkok Office 17/f Ploenchit center, 2 Sukhumvit road, klongtoey,Bangkok 10110 thailandtel +662 656 7000fax +662 656 7111 email [email protected] Pattaya Office 519/4-5, Pattaya Second road (opposite central festival Pattaya Beach), nongprue, Banglamung, chonburi 20150tel +6638 427 771fax +6638 427 772 email [email protected]

reSearcher:

thailandantony PiconSenior Manager | researchemail [email protected]

reSearcher:

thailandSurachet kongcheepManager | researchemail [email protected]

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Bangkok Office Market Report Q4 2010