Bangkok Office Market Q3-2010

Bangkok office Market rePortthailand

www.colliers.co.th

Bangkok Office MarketExEcutivE Summaryno new office supply came onto the market in Q3 2010 but Q4 2010 will see an influx in supply with the scheduled opening of Sathorn Square.

Limited relocation activity in Q3 reflecting the ongoing political impasse deterring companies from making long term plans.

occupancy rates remained the same as Q2 2010 albeit with variances by zone. outer cBD and the eastern fringe recorded gains of around 1% whilst outer city east and northern fringe registered small falls.

rental rates remained more or less the same in the cBD for Q3, although a fall in rates was more pronounced in the northern fringe. 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.

as of September 30th, no discernable impact on the office market has come about from the ongoing demonstrations. However if these become protracted and effect the cBD area then 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.

markEt indicatorS

Q2-Q3 2010

Supply

dEmand

rEntal

occupancy

occupancy

Q3 2010 | OFFICE

officE Zoningthe 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 with a larger floor plate in the nineties 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 considered outer cBD as well as Petchburi road where more grade B offices are located. over time this structure could evolve.

BANGKOK OFFICE MARKET REPORT | Q3 2010

COLLIERS INTERNATIONAL | P. 2

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 the mere

two percent added in the five years following the effects of the asian financial crisis. even with the pick up in the second half of the decade, only 13% of supply comes from the 2000’s.

the Bangkok landscape even today is a result of a five year boom period from 1992 to 1999 which ended due to launches coming to a halt as a result of the asian financial crisis. 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 only a total of around 186,000 sq m was completed. it

was only in the second half of the decade did growth in supply pick up with over four and half times more supply being added in the last five years compared with the first five.

no new supply came to the market during Q1 – Q3 of 2010, however in Q4 2010 two new office buildings are scheduled to be completed in the cBD and outer cBD area with a total area of around 79,000 sq m.

hiStorical Supply

Source: colliers international thailand research

Source: colliers international thailand researchremark : e = estimated supply



total Supply addEd for Each fivE yEar pEriod

cumulativE Supply in Bangkok



the chart shows how supply has fared since the effects of the asian financial crisis. 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.

a significant number of offices are multi-owner in what are also referred to as office condos. almost all of these were built prior to 2000 when investors were looking to make rapid capital gains during the boom period that preceded the economic crash in 1997. there are some positives in occupying multi-owner office such as individual air conditioning systems which are cost effective for companies operating in unusual working hours. However there are disadvantages in the form of sometimes uncoordinated property management and more expensive air conditioning systems for companies using office space predominantly in working hours.



additional Supply for Each yEar

total Supply By oWnErShip, Q3 2010



futurE Supply

dEmand – takE up



futurE Supply By yEar & location

occupancy ratE By location, Q3 2010

two office buildings are scheduled to be completed in 2010, one in the cBD area and another just outside in the outer cBD area. the total office space area will rise by 79,000 square metres representing an increase of less than 1% of current supply. However Sathorn Square, scheduled

to open in Q4 2010, will represent the largest office tower in the cBD since empire tower in 1999. the only other new office building to be supplied in 2010 is Sivatel offices with nearly 6,000 sq m of lettable area.

the outer city West area still commands the highest occupancy rate for Q3 2010, and the outer city north has the lowest occupancy rates. the

outer city east occupancy rate recorded the second lowest figure.



the occupancy rate in the cBD area remains stable from the previous quarter with only a 0.2% move upwards q/q, meanwhile the outer cBD increased by around 1.3%. the northern fringe occupancy fell 1.9% q/q while outer city east decreased by around 1.2%. the positive numbers from the outer cBD are due to higher occupancies in offices close to the

new airport Link which started commercial operation in august. over the next few quarters it will be interesting to see if the convenience of getting to the airport proves a strong magnet for businesses to relocate.

January 2010 recorded a surge in company registrations but the april /May events led to a downturn, but after that period registrations picked

up and august registered a positive increase, boding well for the future.


Source: Department of Business Development and colliers international thailand research

occupancy ratE in 3 locationS, Q1 2009 – Q3 2010

nEWly rEgiStErEd firmS during January 2009 - auguSt 2010

dEmand drivErS



colliers international thailand research Source: Bank of thailand

ExportS from thailand on monthly BaSiS

industrial growth is the main driver that powers the office market as this 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. this augurs well for future demand for office space

although ongoing financial problems in some european countries and the general retracement of the fiscal stimulus in many of thailand’s key export partners could spell problems, exacerbated by foreign currency weakness of the euro and dollar.

aSia pacific officE tEnant SurvEy 2010

colliers international thailand research

thE impact of thE gloBal financial criSiS (gfc) on tEnant’S dEciSion – making

55% of the companies surveyed in asia claim to be still affected by the gfc. Singapore is the most optimistic, with only 43% of companies still affected by the crisis, but approximately 62% of companies in thailand

feel that the dark cloud of the gfc still hangs over them; this is partly due to the reliance of the country on exports that in turn affects the office market.

a survey was made by colliers international regarding sentiment in the office market in the asia Pacific region. a summary has been provided with an emphasis on thailand.

1. are the effects on the gfc still affecting your leasing decision – making plans?



2. Where the market is now sitting on the property cycle clock?



Looking at the asia property clock, on average, tenants believe the property cycle is now heading towards an upswing. indonesian tenants have a more confident outlook regarding their market with an average of 8 o’clock representing a move towards an upswing meanwhile Singapore tenants also believe they are now well past the bottom of the market and heading in a positive direction. the situation remains different for

thailand as the added political uncertainties has meant that confidence still remains in the doldrums with a perception that the country is still in the process of a downswing and yet to reach the bottom of the cycle. Such negative sentiment accounts for lack of office activity and tenants await a more positive atmosphere before embarking on future planning.



3. Has your organization relocated the head office in the last two years?

4. is your organization planning to relocate the head office within the next three years?




Similar figures were recorded for all three countries surveyed in South east asia showing the effect of the gfc on office activity.

the ongoing uncertainties are clearly affecting the office market in thailand in comparison with Singapore and indonesia with far fewer

tenants expecting to relocate. this points to a protracted period of inactivity in the office market in Bangkok.

rEntal ratE, Q3 2010





Unsurprisingly the cBD commands the highest rental rates due to the location and the number of grade a buildings. rents in the northern fringe dropped the same as the outer cBD while increases were recorded in the eastern fringe area and outer city West. 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.

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

rEntal ratE By ZonE

rEntal ratE By gradE Q3 2010





hiStorical rEntal ratE in 3 main locationS, Q1 2009 – Q3 2010

hiStorical rEntal ratE By gradE

in Q3 2010, rental rates for office buildings in cBD area fell slightly by 0.3% compared to Q4 2009. overall rental rates have remained stable

although the northern fringe has overtaken the outer cBD likely due to the proximity to mass transit lines.

rental rates of grade a office buildings have remained stable since 2007 while grade B office buildings recorded a small drop. 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.

rEntal ratE of officE Building in Bangkok By diStancE from BtS / mrt (mEtrES)




offices located close to mass transit stations command a premium although many are newer buildings that would be usually more expensive to rent because of this. 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.

rEgional compariSon

Source: colliers international asia Pacific researchremark : 1 US Dollar = 30.25 Baht, as of 30 September 2010 by Bank of thailand

Singapore has the highest grade a rental rates in South east asia, just ahead of Ho chi Minh city in Vietnam with its current undersupply. Bangkok rates are similar to that of kuala Lumpur but are ahead of Manila

and Jakarta. overall the city remains competitive in relation to other commercial centres in the region.

nEt rEnt of gradE a officE Building in South EaSt aSia




avEragE agE of officE BuildingS By gradE

Many grade c buildings were constructed prior to economic boom of the 1990’s and the age itself of these buildings are a predeterminant of their

grade. Many older buildings were constructed with smaller floorplates due to their location on small plots of land in busy locations.

forEcaSt

the office market still remains in somewhat of a holding pattern with the current uncertainties regarding the global economy and thailand’s own home made concerns has meant tenants keeping future expansion plans on hold. the year 2011 could be a period when businesses start to have a clearer view of where the country is headed.

at the end of 2010, Sathorn Square, a grade a building will provide more than 70,000 sq m to the market. this will affect demand, supply and rental rates in the cBD area and due to its large floorplate, widen the discounting provided to large size office users to both renew leasehold contracts or to be encouraged to relocate.

colliErS intErnational thailand managEmEnt tEam ProJect SaLeS & MarketingWasan rattanakijjanukul | Manager

aDViSorY SerViceSnapatr tienchutima | Manager

office, inDUStriaL & retaiL SerViceSnarumon rodsiravoraphat | Senior Manager

reaL eState ManageMent SerViceSBandid chayintu | associate Director

aDViSorY SerViceS | HoSPitaLitY Jean Marc garret | Director

inVeStMent SerViceSnukarn Suwatikul | Senior Manager

reSiDentiaL SaLeS & LeaSingPatima Jeerapaet | Managing Director

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 772fax +6638 427 772 Email [email protected]

rESEarchEr:

thailandantony PiconSenior Manager | researchEmail [email protected]

rESEarchEr:

thailandSurachet kongcheepManager | researchEmail [email protected]

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this report and other research materials may be found on our website at www.colliers.co.th. 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.

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Bangkok Office Market Q3-2010