Since the end of the global recession in 2011, Bangkok’s office market has experienced a tremendous recovery, with market-wide vacancy rates declining from 14.8% to 9.4% at present while seeing rents increase by more than 34%.
The market’s strong performance in recent years is fuelling the largest wave of new supply seen since the 1990s.
While the growth of demand is expected to keep up, older buildings will inevitably be affected, according to property consultancy JLL.
By the end of 2017, the total stock of office supply in Bangkok will reach 8.9 million square metres. An additional 1.2 million sq m of office space are planned for completion between 2018 and 2022, averaging 240,000 sq m a year, close to the average net absorption of more than 200,000 sq m witnessed since the Bangkok office market began recovering in 2011.
Yupa Sathienpabayut, head of office leasing at JLL, says: "Although we expect the growth in demand to keep pace with new supply, older office buildings may see some negative effects. This is because almost all of the new office development projects that are in the pipeline will be of very high quality, with some such as One Bangkok, which will be built to LEED and WELL platinum standards possibly necessitating a new ‘Premium Grade’ asset class and are therefore likely to attract leading conglomerates and MNCs better.
“Despite higher rents, many high-profile local and international companies in Bangkok prefer offices in quality office buildings that are not only convenient but also can reflect or help lift their corporate image,” Ms Yupa continues.
In order to maintain competitiveness, owners of older buildings must ensure their assets are well managed, maintained and improved at all time, according to Ms Yupa.
“One key advantage that some owners of older buildings have is a prime location in central business areas with close proximity to mass transit stations. Most of these locations cannot accommodate new development projects.
"Despite older age, these buildings can stay competitive when landlords adopt appropriate strategies. Renovation, a critical element in improving competitiveness, can be seen by the recent post-renovation success of office buildings such as Sindhorn Towers, GPF Witthayu, Siam Tower and Vanit Building,” MsYupa explains.
The considerable amount of future supply has also made some developers less confident to develop new office projects, particularly those in less prime locations. However, Ms Yupa believes that windows of opportunity remain open.
“While basic requirements of tenants include efficient space, convenient accessibility, ample parking spaces and some retail support, different groups of tenants may have other specific requirements such as close proximity to their customers or their business peers.
"Therefore, the success of a new development project will rely on the ability of the developer to understand who their target customers are, what their customers require and then to deliver products that suit their needs," she says.
This explains how some secondary-grade office buildings in non-prime locations are currently enjoying strong occupancies and above-market-average rents, she adds.
