Due to changing conditions the office market is shifting to a landlord’s market.
Bangkok’s office market is performing well according to CBRE. The real estate firm have said that despite weak economic growth, office rents in 2016 increased by between five and nine percent. This has been a consistent story for sometime now.
CBRE research has identified that supply for the city increased by 140,000 square metres. At the same time vacancy decreased to eight percent. This is likely to have been influenced by a number of landlords refurbishing or demolishing their office space to replace with more modern amenities to meet with demand.
As a result, Bangkok is experiencing a wave of tenants agreeing leasing terms to a property before construction has even commenced. This pre-leasing is a fairly new phenomenon as there has been a glut of supply for many years. This has ensured a tenants market where there was little need to commit to a building before construction.
In fact, for the first time since the 1990s the office vacancy rate in Bangkok has reduced. It has continued to fall due to limited options on the table. Buildings in good condition or with direct access to the mass transit network naturally warrant the highest price tags.
Nithipat Tongpun, executive director of CBRE’s Office Advisory and Transaction Team, commented, “CBRE has fully let SC Tower, a new 11,000-square-metre development on Phaholyothin Road, prior to its completion. Previously, CBRE had leased 100 percent of M Tower on Sukhumvit Road more than a year before completion”.
Rising rents
Real estate firm Edmund Tie & Company are echoing these sentiments with their figures. Having recorded a rise in rents of Grade A office space from THB 775 per square metre in 2015 to THB 805 per square metre in 2016. An increase thanks to the rise in occupancy rates of 90.8 percent in 2015 to 91 percent the following year.
As the market turns from a tenants to a landlord’s market, tenants are put in a new position. Pre-leasing can be complicated as there is no end product to see. Plus there is the risk of delayed completion.
“In a building under construction, a tenant needs to be able to understand the floor plans and specifications, because they cannot see the finished product. They need to have confidence that the landlord can deliver the building according to the designed specifications, and more importantly can complete the building on schedule. So that the tenant can completely fit out and move in with enough time to reinstate their existing premises before the lease on the current premises expires,” added Nithipat.