Bangkok Office Market Overview by Colliers International Thailand

c o l l i e r s i n t e r n at i o n a l | t h a i l a n d

What tenants Want After two years in the doldrums the economy is expected to improve in 2008 with recovery in domestic demand, provided that the general election brings a more stable investment environment. Politics and unresolved policy issues, such as the Foreign Business Act (FBA), Retail and Wholesale Act and the 30% unremunerated reserve requirement (URR), are key risks but investment shows signs of strengthening. Domestic consumption and investments will be the main economic drivers next year. Many businesses are looking to the new government to boost economic growth through infrastructure mega-project investments, many of which are already in the pipeline, local consumption and exports.

Our special feature within this report, What Tenants Want, discusses the findings from the recent Colliers International tenant survey. The survey reveals that tenants looking for new office accommodation will be focusing on:

• competitive rental rates • favourable lease terms and conditions • availability of expansion space • location • good access to public transport systems For many tenants, the main deterrent for relocating existing office facilities is the capital costs of fitting out and moving. Bearing these factors and the current market condition in mind, tenants will look to gravitate to quality, pushing up demand for CBD grade A offices near BTS and MRT stations.

With a better political outlook and several economic drivers, Bangkok’s current office vacancy rate of 12.2% across the board should remain relatively stable next year with slightly higher demand and some additional new supply. As a result, rental rates are unlikely to increase significantly and may even remain stable. As such, we can expect tenants to be more demanding and landlord’s ability and willingness to address some of the tenants’ key concerns, as outlined in our special feature, will be increasingly key to their success.

Market indicators

2007 2008F

supply

deMand

Vacancy

rental

What tenants Want

www.colliers.com/thailand

o F F i c e M a r k e t | d e c e M b e r | 2 0 0 7

landlord’s ability and willingness to address some of the tenants’ key concerns, as outlined in our special report, has become increasingly important.

colliers international2

growth rate

(% groWth) 2005 2006 2007p 2008p

total consumption 5.5 3.2 2.7 3.8

private consumption 4.3 3.1 1.4 4

public consumption 13.7 3.4 10.6 3

gross Fixed capital Formation 11.1 4 1 9.5

private investment 10.9 3.9 -0.2 10

public investment 11.3 4.5 4.5 8

total domestic demand 7.3 0.3 1.7 6.7

exports 4.3 8.5 6.5 7.2

goods 4.3 9 7 6.6

services 4.3 6.7 4 10

imports 9.3 1.6 2.5 10.5

total gdp 4.5 5 4.3 4.6

thailand gdp groWth rate

political and econoMic oVerVieW

For most of 2007, Thailand’s economy has continued to be weighed down by lacklustre private investment and consumption as well as weak business and consumer confidence due to the prolonged political uncertainties. Foreign investors have been cautious and looking elsewhere while they wait for increased stability and clearer policy. However, local businesses are generally positive about the economic outlook post the December 23 election and projected economic growth next year. The shape of the economy is regarded as still fundamentally strong with low headline and core inflation and potentially falling interest rates.

In the short term, Thailand may have lost investment opportunities to Vietnam and Malaysia, mainly due to its uncertain political and economic policy. However, in the medium-term, it should return to being an attractive destination for foreign investors due to its strong infrastructure. Several infrastructure mega-project investments, currently in the pipeline, should help boost investors’ confidence.

oVerall econoMy

Real GDP is expected to grow by 4.3% in 2007, down from 5% in 2006, before rising to 4.6% in 2008, according to the World Bank. Lower interest rates and higher consumer confidence will help improve household

consumption growth. However, oil price rises and supply constraints will continue to limit growth. Declining export competitiveness is another risk that could affect the recovery of consumption and confidence in spending. Export growth is expected to slow down as the exchange rate remains appreciated.

the Knowledge report | December | 2007 | Bangkok office Market

POLITICS AND ECONOMYIn the short term, Thailand may have lost investment opportunities to Vietnam and Malaysia, mainly due to its uncertain political and economic policy. However, in the medium-term, it should return to being an attractive destination for foreign investors due to its strong infrastructure.

OVERALL ECONOMYReal GDP is expected to grow by 4.3% in 2007, down from 5% in 2006, before rising to 4.6% in 2008.

Source: World Bank Thailand Economic Monitor, November 2007

colliers international 3

growth rate

(% groWth) 2005 2006 2007p 2008p

total consumption 5.5 3.2 2.7 3.8

private consumption 4.3 3.1 1.4 4

public consumption 13.7 3.4 10.6 3

gross Fixed capital Formation 11.1 4 1 9.5

private investment 10.9 3.9 -0.2 10

public investment 11.3 4.5 4.5 8

total domestic demand 7.3 0.3 1.7 6.7

exports 4.3 8.5 6.5 7.2

goods 4.3 9 7 6.6

services 4.3 6.7 4 10

imports 9.3 1.6 2.5 10.5

total gdp 4.5 5 4.3 4.6


Private investment contracted for the first time since the late 90’s financial crisis at the beginning of 2007. However, investment growth, both private and public, is expected to pick up in 2008 despite the risks. Given that many industries are running at full capacity, they will be ready to expand capacity next year. The capacity utilization rate in the third quarter of 2007 increased slightly from the preceding quarter to 76.4%.

politics and policies

Expectations of improved economic conditions in 2008 are high, with the Stock Exchange of Thailand (SET) research institute reporting that more than half of 110 listed companies surveyed agreed that politics would become more stable after the December 23 election. However, significant risks remain, not least the potential political uncertainty of a coalition government, or a return to the deficit-engendering populist policies of the Thaksin

regime.Some of the key policies that have depressed foreign investment sentiment in 2007 remain unresolved, although at least the Democrat Party leader, Abhisit Vejjajiva, has already laid out an agenda that supports foreign investment and liberalization of certain sectors and other major parties would be expected to more actively promote a return to a more open economy.

The primary concern for foreign investors is the uncertainty of the draft amendments to the FBA. Proposed amendments to the FBA by the new interim government affecting foreign shareholding and the stricter land law enforcements on foreign ownership, especially of beach front properties in both Phuket and Samui Islands, have dampened investment inflows. Should the amendments come into effect, investors will look to other countries such as Vietnam and Malaysia, where foreign investment policy is increasingly more relaxed. Nevertheless,

FOREIGN BUSINESS ACTThere is a strong probability that the FBA amendment is unlikely to pass despite the recent push by the National Legislative Assembly (NLA), which has limited time in office to effect major changes.

key policies that haVe daMpened Foreign inVestMent:

Foreign Business Act (FBA)

Retail and Wholesale Business Act

30% unremunerated reserve requirement (URR)

priVate inVestMent groWth, ManuFacturingproduction groWth and capacity utiliZation

ann

ual p

erce

ntag

e c

hang

e

-5

10

5

20

private investment growth (lhs)Manufacturing production growth (lhs)capacity utilization (rhs)

0

15

perc

enta

ge

70

73

72

76

75

71

74

aVg 1995-1996 cap u = 77%

2004-h1 2005-h1 2006-h1 2007-h1

Source: World Bank



RETAIL & WHOLESALEBUSINESS ACTWhile new investors may be less inclined to enter the retail market as a result, the existing retailers still believe in the growth story of the retail sector.

CAPITAL CONTROLWe expect the URR to be lifted sometime next year…and we would expect any such move to give a significant boost to foreign investment.

there is a strong probability that the FBA amendment is unlikely to pass despite the recent push by the National Legislative Assembly (NLA), which has limited time in office to effect major changes. Both the Democrats and the PPP will most likely shelve this. While a lack of clear resolution to the FBA debate may continue to deter some foreign investors, maintaining the status quo – and the prospect of some liberalization under a new government – would definitely be seen as preferable and is likely to encourage a return of some foreign investors.

Another deterrent to foreign investments has been uncertainty created by the Retail and Wholesale Business Act. Possible impacts on the retail market include higher entry barriers, expansion freeze, increased investment costs, longer lead times for new stores, higher retail price, shorter operating hours/days, return of bargaining power to suppliers and uncertain business continuity, subject to a Central Monitoring Committee (CMC).

While new investors may be less inclined to enter the retail market as a result, the existing retailers still believe in the growth story of the retail sector. Some of the superstore operators that would be hemmed in by new retail zoning

rules have already begun to change their development plans and reduce outlet sizes. Tesco Lotus has already introduced Lotus Express and even smaller formats could be adapted from shop houses. Carrefour too is considering smaller outlets of 1,000 to 2,000 square metres as opposed to 10,000 to 20,000 square metres and has voiced its support of the new law.

A further deterrent to foreign investment inflows in 2007 has been the URR, the capital control measures adopted by the Bank of Thailand (BOT) towards the end of 2006. These measures, which were introduced to curtail the rapid appreciation of the Baht, require foreign investors to deposit 30% of non-trade-related inflows into an interest-free reserve account for one year. The BOT still has concerns that another wave of sub-prime-related problems in the U.S. could lead to renewed upward pressure on the Thai currency, especially in the second quarter of 2008. However, we expect the URR to be lifted sometime next year provided this hurdle can be overcome. Indeed, the Democrats have already announced that they will scrap the 30% reserve requirement should they come to power, and we would expect any such move to give a significant boost to foreign investment.


inVestMent

Overall Foreign Direct Investment (FDI) has been depressed for most of 2007. The private sector wants to see political certainty and clear supportive policies after the murky conditions of the past two years. BOT figures showed investment contributed to only 20% of GDP, against the previous year’s 40%.

However, in Board of Investment (BOI) related sectors, an increase in investments has been reported, partly because these sectors are largely protected from FBA issues. Industrial investment has been climbing back up, as indicated by the strong performance of listed industrial estate companies such as Amata and Hemraj. For the first 9 months of 2007, Hemaraj reported total revenue of THB 3,742.2 million, a 31% increase year-on-year,

while Amata reported total revenue of THB 648.26 million for the same period, an increase of 12% year-on-year.

In the first 9 months of 2007 applications worth a total of THB 446.1 billion were submitted to the BOI. Most foreign applications were in the auto-parts, metal, services, infrastructure, biotech and petrochemical industries. Within the same period the BOI approved THB 536.6 billion worth of projects, including several mega-projects, such as Honda’s expansion and eco car projects, Thailand Tobacco Monopoly’s new production facility and several PTT projects. These investment projects show large companies are still confident investing in Thailand despite the political instability and global economic slowdown.


FOREIGN INVESTMENTIn Board of Investment (BOI) related sectors, an increase in investments has been reported, partly because these sectors are largely protected from FBA issues.

MEGA-PROJECTSThese investment projects show large companies are still confident of investing in Thailand despite the political instability and global economic slowdown.

Source: BOI

2004 2005 2006 2007

applications approved for foreign firms and joint ventures

220.4 245.3 212.6 346.1

applications approved for thai firms 102 182.6 56.4 190.5

total 322.4 427.9 269 536.6

boi approVal by sector by the end oF septeMber each year (thb billion)



INFRASTRUCTURE The mega-project investment programme is significant not merely as a short-term source of demand stimulus but more importantly as a means of unlocking new sources of comparative advantage for Thailand.

MASS TRANSITGreater availability of mass transit will provide travel convenience as well as encourage a change in commuter travel behaviour from dependence on cars to using rail.

inFrastructure

Meanwhile, the interim government has pushed ahead some of the long-awaited infrastructure mega-projects. The mega-project investment programme is significant not merely as a short-term source of demand stimulus but more importantly as a means of unlocking new sources of comparative advantage for Thailand.

Greater availability and use of mass transit rail is expected to support economic growth by reducing bottlenecks on Bangkok’s heavily-congested roads. When the whole network is completed, it will cover not only the inner part of the city, but also the outer areas including Nonthaburi and Samut Prakan, and will have a major impact on the property market. It will provide travel convenience as well as

encourage a change in commuter travel behaviour from dependence on cars to using rail. Accessibility to mass transit will become increasingly important to companies looking for offices. (See “Special: What Tenants Want”.) The Office of Transport and

Policy and Planning (OTP) estimates that out of some 17 million commuter trips a day, only 700,000 are currently using the existing sky train or subway networks.

Source: OTP (Dec 07)



The table below outlines the planned developments. Completion dates may be delayed by bidding or funding problems.

Outside of Bangkok, a THB 20 billion project to improve the country’s rail transport system is scheduled to begin next year and be completed in 2014. It will include the construction of two rail routes - one linking Khon Kaen, Nakhon Ratchasima and Laem Chabang deep sea port in Chon Buri, and the other between the container depot at Lat Krabang and Laem Chabang. Currently, up to 86% of goods are transported by truck. While rail transport is much more fuel-efficient, it only accounts for around 2% of the freight moved in Thailand. With the continued rise in oil prices, a move to rail is exactly the sort of structural change that is essential for Thailand’s economic security.

Mass transit plan

project From to estimated completion

bus rapid transit chong nonsi ratchapreukQ4 2008

(under bidding)

green lineon-nut

saphan taksin

samrong

Wonwian yai

2008/9

(under construction)

airport link Makkasan suvarnabhumi airport2008

(under construction)

purple line bang sue bang yai2011

(under planning)

blue linebang sue

hua lumphong

tha phra

bang kae

2013

(under planning)

red line

bang sue

bang sue

bang sue

talingchan

rangsit

Makkasan-hua Mak

n/a

(under planning)

orange line bang kapi bang bamrun/a

(under planning)

pink line ramkamhaeng chaeng Wattanan/a

(under planning)

green lineMor chit

bae ring to

saphan Mai

samut prakan

n/a

(under planning)

Source: Mass Rapid Transit Authority of Thailand (MRTA)

MASS TRANSITWhile rail transport is much more fuel-efficient, it only accounts for around 2% of the freight moved in Thailand. With the continued rise in oil prices, a move to rail is exactly the sort of structural change that is essential for Thailand’s economic security.



special: What tenants Want Office tenants in Bangkok are reluctant to move due to high capital costs of fitting out and moving despite concerns over increases in rent, availability of car parking, access to public transportation and air-conditioning, Colliers International tenant survey reveals. The survey was distributed to many of the major Bangkok office occupiers.

concerns With current oFFice accoModationTenants are more concerned over commercial issues than issues related to building systems and management or those relating to health and safety. The most cited commercial concerns are:

• future increase in rent and availability of car parking spaces, mentioned by 70% of those surveyed • current lease terms and condition (65%) • air-conditioning (65%) • access to public transport systems, such as BTS and MRT (57%) • future expansion space availability (52%)

TENANTS’ CONCERNSCommercial issues are the biggest concerns among tenants.

COMMON CONCERNS WITH CURRENT OFFICE1. Future increase in rents2. Availability of car parking spaces3. Lease terms and conditions4. Air-conditioning5. Access to public transport systems6. future expansion spaceavailability

0% 10% 20% 30% 40% 50% 60% 70% 80%

top 15 concerns with current office

% of mention

Future increase in rental rates

availability of car parking spaces

lease terms and conditions

air conditioning

access to public transport systems, e.g. bts, Mrt

expansion space availability

retail facilities, e.g. bank outlets, food outlets, gym

elevators

Fire detection and suppression systems

back-up power provision and support

security levels are too low and put the building at risk

Floor plate efficiency

common conference facilities / meeting rooms

building technology systems

emergency access and egress from the building



Other than commercial concerns, tenants also highlighted the following key concerns:

• retail facilities • elevator system (52%) • low security levels (48%) • emergency access and egress (48%) • fire detection systems (48%)

Rising oil prices results in companies turning their focus on energy efficiency. BOT believes that oil prices will continue to surge as long as geopolitical risks and speculation remain. A tenant can save up to 30% on electricity bills with energy-efficient air conditioners.

When asked to rate each of the concerns identified as the most significant to their organisation, 55% of those surveyed rated future increase in rental rates as the most significant. (See “Rental rates” in main report.) The other most significant concerns to existing tenants, by order of significance, future expansion space availability, overtime air-conditioning charges, lease terms and conditions and availability of car parking spaces.

Interestingly, while over-time air conditioning charges was not among the top 15 concerns most mentioned by the surveyed tenants (43% of those surveyed cited this as a concern), more than half of those who did mention it, rate it as a significant concern, many even placing it as their number one concern.

OVER-TIME AIR CONDITIONING CHARGESInterestingly, while over-time air conditioning charges is not among the top 15 most mentioned concerns, more than half of those who did mention it, believe this issue is significant.

concerns by order oF iMportance

1. Future increase in rental rates

2. expansion space availability

3. overtime air-conditioning charges

4. lease terms and conditions

5. availability of car parking spaces



WHAT TENANTS WANT90% of those surveyed mentioned access to public transport systems as a key consideration when selecting new office space.

ACCESS TO PUBLIC TRANSPORTSWhile 90% of those surveyed mentioned access to public transport as an important factor in new office selection, they do not see this issue as a priority.

Factors inFluencing neW oFFice selectionThe same trend follows when it comes to selecting new office accommodation. Commercial issues are again the most important and access to public transportation is high on the priority list.

90% of those surveyed mentioned access to public transport systems as a key consideration when selecting new office space. This is not surprising given that many have identified car parking spaces as one of their most significant concerns at existing locations. With several mass transit projects in the pipeline, companies are hoping for a change in commuting behaviour to become more dependent on rail. (See “Infrastructure” in main report.)

Other important factors tenants have identified are:

• gross rental rates (80%) • location – (80%) • lease terms and conditions (75%) • retail facilities (70%)

However, while 90% of those surveyed mentioned access to public transport as an important factor in new office selection, they do not see this issue as a priority. When asked to place issues they have identified earlier by order of importance, access to public transport system is usually in the middle of the list, showing that this factor is somewhat important but not a critical requirement. Nevertheless, tenants did rate access to public transport higher than the availability of car parking spaces, indicating the changing attitude to commuter behaviour and the need for companies to adapt accordingly.

% of mention

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

top 15 Factors for new office selection

access to public transport systems, e.g. bts, Mrt

gross rental rates

building location, e.g. in cbd or outside

lease terms and conditions

retail facilities, e.g. retail bank outlets, food outlets, gym

availability of car parking spaces

elevator system

capital costs for fitting out and moving

security levels

availability of space

air conditioning system

emergency access and egress

Floor plate efficiency

building image

landlord reputation



The most important factor influencing decisions on office relocation is the issue of capital costs for fitting out and moving. Tenants are reluctant to move as they are often faced with high fit-out costs. This is particularly significant in Thailand where market practice is to enter into a three-year lease agreement, and as such, depreciation rates are higher due to this shorter period of time. Gross rental rates is the next most important factor, followed by availability of future expansion space and building location and then lease terms and conditions. The only two non-commercial factors which made the top ten most important list are the issues of security levels and elevator systems. This is a clear indication that building systems, building management, health, safety and environmental issues are still relatively low priorities among Bangkok office occupiers. However this is expected to change in the medium term as global standards have a stronger influence on decision making.

iMplications and suggestions to landlords

While tenants may be motivated to move due to increase in rental rates, lack of car parking spaces, lack of expansion space availability, high over-time air conditioning charges and limited access to public transport, they have considerable concern over the capital costs of fitting out and moving. It is often seen that tenants are often forced to relocate due to the lack of existing expansion space at their current location and do not always wish to split their operations. Landlords should take these concerns into consideration for future renovations or developments. Landlords’ ability and willingness to address tenants’ concerns and requirements has become increasingly important and will be key to their success.

DETERRANT TO OFFICE RELOCATIONThe most important factor influencing decisions on office relocation is the issue of capital costs for fitting out and moving.

SUGGESTIONS TO LANLORDSLandlords’ ability and willingness to address tenants’ concerns and requirements has become increasingly important and will be key to their success.

key inFluencing Factors by order oF iMportance

1. capital costs for fitting out and moving

2. gross rental rates

3. availability of future expansion space

4. building location, e.g. in cbd or outside

5. lease terms and conditions


oFFice Market oVerVieWsupply Businesses are optimistic about the economy in 2008, many are looking towards new supply in the market and several new developments are underway. The total Bangkok office supply as of 3rdQ 2007 is 7.43 million square metres. Based on Colliers International Thailand’s zoning map, the current total CBD supply (zones 1 and 2) is 3.45 million square metres, of which, 1.13 million square metres are grade A offices. New office supply being added in 2008 is forecast to be approximately 296,000 square metres with a further 231,000 square metres being added in 2009. This will result in an

additional 205,000 square metres being added to the CBD area in 2008 (all grade A), and further 87,000 square metres in 2009 (70,000 square metres of grade A office), bringing the total CBD stock up to 3.73 million square metres by the end of 2009. Almost all of the new office buildings outside the CBD will be along the Northern corridor (zone 7), adding an additional 236,000 square metres to the area by the end of 2009. The growth in the CBD and Northern corridor is strongly influenced by the public transport systems running through the zones.


SUPPLYThe total Bangkok office supply as of 2007 3rdQ is 7.43 million square metres. New office supply being added in 2008 is forecast to be approximately 296,000 square metres with a further 231,000 square metres being added in 2009.

Total Supply by Zones (net sq.m.)

3,073,996

1,880,406 598,907 208,164

226,081

422,790

361,618 657,897

Zone 1

Zone 8 Zone 7

Zone 6

Zone 5

Zone 4

Zone 3 Zone 2

1. Inner CBDSilom-Sathorn-SurawongseSi Phaya-Ratchadamri-WirelessRama IV

2. Outer CBDEarly Sukhumvit-Rama IVWireless-Ratchadapisek

3. East ZoneNew Phetchaburi-Rama IXSukhumvit-RamaIV-Na RanongKasemrat

4. South ZoneRatchadapisek-Rama IVNarathiwas-Rama III-Charoenkung

5. North ZonePathumwan-Phayathia-Ratchaprarop-Ratchawithi

6. West ZoneBaromratchachonnani-Rama VIIPhet Kasem-Suk SawatRat Burana

7. Northern CorridorChangewattana-PhaholyothinRatchapisek-Asoke-RatchawithiTiwanon-Krungthep NonthaburiWonsawang

8. Eastern CorridorNew Phetchaburi-Rama IXRatchadapisek-LadphraoRamkamheang-Bangna Trad

To New Airport

6 32

4

5

7

1

8

To Old Airport

To Lam Chabang

To Huahin

1. Inner CBDSilom-Sathorn-SurawongseSi Phaya-Ratchadamri-WirelessRama IV

2. Outer CBDEarly Sukhumvit-Rama IVWireless-Ratchadapisek

3. East ZoneNew Phetchaburi-Rama IXSukhumvit-RamaIV-Na RanongKasemrat

4. South ZoneRatchadapisek-Rama IVNarathiwas-Rama III-Charoenkung

5. North ZonePathumwan-Phayathia-Ratchaprarop-Ratchawithi

6. West ZoneBaromratchachonnani-Rama VIIPhet Kasem-Suk SawatRat Burana

7. Northern CorridorChangewattana-PhaholyothinRatchapisek-Asoke-RatchawithiTiwanon-Krungthep NonthaburiWonsawang

8. Eastern CorridorNew Phetchaburi-Rama IXRatchadapisek-LadphraoRamkamheang-Bangna Trad

To New Airport

6 32

4

5

7

1

8

To Old Airport

To Lam Chabang

To Huahin


New office building completions in 2008/2009 will include Asia Centre, Athenee Tower, Chamchuri Square, Interchange 21, Sala at Sathorn and Sathorn Square in the CBD area. Outside of the CBD, we expect the completion of Cyber World, Pakin Building, The Energy Complex and the new centre for the Thai government; the last two being mainly owner-occupied spaces.

deMand

The Bangkok office market absorption rateduring 2007 has been low. We anticipate that around 167,000 square metres will be taken up by the end of the year. This absorption is almost half of what it was at the peak of the market in the earlier years of this decade. The main cause of this was the continuing

uncertainty in politics and economic policy and low consumer confidence, leading to delayed expansion plans and a low number of new start-ups. With several mega-projects in the pipeline, more certainty in economic and investment policy and increased consumer and business confidence post the December 23 election, we expect the office market sentiment to improve in 2008. However, as discussed earlier, the domestic political climate as well as the

weakening international markets remain risks that can limit the growth potential. As a result, the increase in absorption rate is likely to be limited to an increase of around 10-15% on 2007.


ABSORPTION RATEThe Bangkok office market absorption rate during 2007 has been low. We anticipate that around 167,000 square metres will be taken up by the end of the year.

DEMANDWe expect the office market sentiment to improve in 2008 with more certainty in investment and economic policy, resulting in a 10-15% increase in absorption rates.

150,000

annual absorption

net

abs

orpt

ion

(sq.

m.)

50,000

0

2004

2005

2006

2007

F

2008

F

2009

F

100,000

200,000

250,000

300,000

350,000


OCCUPANCYEven with new supply being added to the market, particularly in CBD, the occupancy rate should remain relatively stable at around 86-88% across the market.

occupancy The average occupancy rate at 3rdQ 2007 is at 87.8% across all of Bangkok. The occupancy rate within the CBD is slightly higher than outside, with 88.9% in zone 1 and 91.2% in zone 2. The occupancy rate for grade A buildings is 93.4% in zone 1 and 85% in zone 2. Other popular office locations, such as zone 7, have an occupancy rate of 88.6%. We predict that, despite the risks, demand will increase modestly by the beginning of 2008, as local business and consumer confidence grows. Even with new supply being added to the market,

particularly in the CBD, the occupancy rate is still expected to remain relatively stable at around 86 - 88% across the market as demand should be greater in 2008 compared to 2007.


1.50

supply - demandby Zones - 3rdQ 2007

net

are

a (s

q.m

.)

Vanc

ancy

Million

0.50

0.00

1 2 3 4 5 6 7 8

1.00

2.00

2.50

3.00

3.50

15.0%

5.0%

0.0%

10.0%

20.0%

25.0%

30.0%

50.0%

45.0%

40.0%

35.0%

11.1%8.8%

total supply total take up

Zones

Vacancy rate

7.5% 8.6%

11.4%14.1%

11.4%

28.9%

3

bangkok office market

1

0

2004

2005

2006

2007

F

2008

F

2009

F

2

4

5

6

7

8

9

0%

5%

10%

15%

20%

25%

30%

total supply total take up Vacancy rate

net

are

a (s

q.m

.)

Vanc

ancy

Million


rental ratesThe weak economy and consequently weak demand throughout 2007 has resulted in Bangkok office rental rates stabilising throughout the year, with the CBD grade A office monthly gross rental rates averaging between THB 700 and THB 745 per square metre. Bangkok’s CBD grade B office monthly gross rental rates averaging between THB 500 and THB 550 per square metre.

Rental rates steadily increased at around 10% year-on year in the three years prior to the September 2006 coup, causing concern among tenants. In 2008, the rate will most likely climb at a slower rate due to continuing risks, and new supply entering the market in the next two years, particularly within the CBD. Additionally, the current vacancy level all across board is 12.2%. In comparison to the Singapore and Hong Kong office markets, with an average vacancy rate of 2 - 3% in 3rdQ 2007, the Bangkok office market still has much room for absorption. Furthermore, concerns over capital costs of fitting out and moving, as shown in our tenant survey, will deter some tenants from moving to new office locations, (See “Special: What Tenants Want”), reducing demand and consequently keeping rents down.

According to our tenant survey, tenants are more concerned over capital costs of fitting out and moving than the increase in rental rates. Additionally, tenants have placed location including proximity near public transport systems as part of the top five influencing factors when considering new office locations. These two points indicate that many tenants, who plan to move, may be looking to gravitate to quality, despite their reluctant to move after fitting out an office, creating more

demand for the CBD grade A office space near public transport systems. Thus, we may see the rental rates in the CBD, particularly for grade A office climbing at a slightly higher rate than non-CBD or other grades of offices. However, should there be a further slowdown in the global economy or a return of political instability, rents will face downward pressure which can lead to rent remaining stagnant. Notwithstanding any major events, we expect the rental index to slightly increase by around 2-4% across the board.


BANGOK vs. SINGAPORE & HONG KONGIn comparison to the Singapore and Hong Kong office markets, with an average vacancy rate of 2 - 3% in 2007 3rdQ, the Bangkok office market still has much room for absorption.

MOVING TENANTSConcerns over capital costs of fitting out and moving, as shown in our tenant survey, will deter some tenants from moving to new office locations.

RENTAL RATESWe expect the rental index to increase by around 2-4% across the board.

300

bangkok office Monthly rental rates

th

b / s

q.m

.

100

0

200

400

500

600

700

800

900

2000 2001 2002 2003 2004 2005 2006 2007F

cbd grade a cbd grade b non cbd grade a

267 oFFices in 57 countries on 6 continents

usa 95 canada 17latin aMerica 17 asia paciFic 53 eMea 85

us$1.6 billion in annual reVenue 673 Million sQuare Feet under ManageMent 10,171 proFessionals

contact inForMation

thailand: BangkokGreg White Director | Commercial AgencyColliers International17/F Ploenchit CenterKlongtoeyBangkok 10110Tel: 662 656 7000Fax: 662 656 7111Mobile: 668 1890 9460

researcher:BangkokSalisa Landy

this report and other research materials may be found on our website at www.colliers.com/thailand. Questions related to information herein should be directed to the research department at the number indicated above. this document has been prepared by colliers international for advertising and general information only. colliers international makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. any interested party should undertake their own inquiries as to the accuracy of the information. colliers international excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. colliers international is a worldwide affiliation of independently owned and operated companies.

www.colliers.com/thailand


suMMary and outlook

The outlook, both politically and economically is expected to improve next year:

• The December 23 election should bring about some stability. • Unresolved policy issues should be cleared up by early next year. • Domestic consumption and investments will be the main economic drivers. • Mega-project investments should help to improve consumer and business confidence

Such political and economic indicators suggest that next year will be a better year for the Bangkok’s office market, which has lost some of its shine in the past two years. Tenants will be more demanding when renewing leases or selecting new office locations. Landlords will need to be increasingly responsive to some of the tenants’ key concerns and requirements.

2008 should prove to be a good year for tenants, if they are able to overcome the burden of capital costs of fitting out and moving, since they should be able to snap up good available office space without the burden of big rental increments seen during the robust years earlier this decade.

Documents

Bangkok Office Market Overview by Colliers International Thailand