Bangkok office rents have risen by more than 35% over the last 10 years and CBRE expects them to continue to rise until at least 2020.
Companies are looking closely at the rising costs of their office accommodation. Senior and regional managers are asking questions what can be done to save money on office rent.
The usual response is to look at cheaper alternatives by moving to a lower-quality building or to a location away from the prime central business district (CBD) locations, or both.
For Bangkok, the answer is not that simple because the gap between grade-A and grade-B building rents and CBD and non-CBD locations is not that great.
The average rent for a grade-A CBD building is currently 1,000 baht per square metre per month whereas the average rent for a grade-B CBD building is 730 baht.
The average rent for grade-A buildings in non-CBD locations is 810 baht per sq m per month, so moving away from the city centre does not make much difference.
In some cities, the land component in the total cost of an office building is much greater than the construction cost. Therefore, rents for buildings in cheaper locations are much lower.
In Bangkok, even in the most prime locations, land accounts for up to 50% of the total development cost. Therefore, the difference in rents between prime and less prime locations is lower than in other cities.
Tenants also need to take into account the capital costs of relocation. Fit-out and furnishing costs for a reasonable standard office are about 20,000 to 25,000 baht per sq m. Amortised over a five-year deprecation period, this equates to 300-400 baht per sq m per month.
This is greater in most cases than any rent saved by moving to a cheaper building.
"This is why in Bangkok the justification to move is usually driven by either a company's need to expand on contract or a need to refit the office," said Nithipat Tongpun, head of advisory and transaction services for offices at CBRE Thailand.
In most cases, it is much easier to fit out and furnish a new office than trying to do this with the staff in the existing premises, providing an incentive to move when a new fit-out is needed.
Companies also choose to relocate to upgrade their working environment in terms of locations and buildings.
One of the biggest challenges facing any company in Bangkok is finding and retaining talent. To hire and keep the best people, companies need to keep an attractive working environment.
This means being in an accessible location with good access to mass transit and a good environment.
Some of the big differences between best new buildings and older-generation buildings are the speed of lifts and the ability of the air-conditioning systems to keep all areas of the office at a constant temperature. The new generation of grade-A office buildings can provide this environment which is why they have been able to achieve rentals above the average.
Faced with a market where rents are rising, but good-quality offices are needed to attract and retain staff, companies are trying to house more people in less space to contain costs.
They are doing this by using a smarter workspace strategy where in many cases staff do not have permanently assigned desks.
With rents rising more, companies are looking at whether they should move but they need to assess the total impact on costs and performance by taking into account, rent, capital costs and the ability of the workplace to serve the needs of their staff.
Thatchanan Siddhijai is a manager, Research and Consulting, CBRE Thailand. She can be reached at bangkok@cbre.co.th Facebook: CBRE.Thailand Twitter: @CBREThailand LinkedIn: CBRE Thailand and website: www.cbre.co.th
