Bangkok Office Rents Flat While Hong Kong And Singapore Hit Record Highs

Bangkok Office Rents Flat While Hong Kong And Singapore Hit Record Highs
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With the average rent for prime office space in the central business district of Bangkok remaining just slightly more than THB740 per square meter (psm) a month (US$22), office rentals in Bangkok are some of the cheapest in the region.

Other Asian cities are charging well over THB2,000 psm (US$60). International Financial Center Tower 2 (IFC Tower 2), the highest building in Hong Kong, has attained a record rental of about THB7,400 psm (US$220). Other Asian cities such as Singapore are charging an average of about THB2,000 psm (US$60), while offices in Ho Chi Minh City are charging almost twice that of Bangkok at about THB1,480 psm (US$44). Average grade A office rents in Tokyo are over THB4,500 psm, making them the most expensive office space in Asia.

The slowing economy at present is also pushing rentals in Bangkok even lower with the average rent for prime office in the second quarter of 2007 dropping for the first time since 2000 on a quarter-on-quarter basis. CB Richard Ellis projects that the downward pressure on rental rates could further increase at the end of the year when new grade A supply is coming out into the market.

The situation, however, will not last for long. "We believe that once the business confidence is restored, then new demand will exceed increased supply. The market has had close to 300,000 sq.m. of new take up annually since 2000, only falling in 2006 and 2007. There is 520,000 sq.m. of new supply from 2007-2009, or about 173,000 sq.m. a year. Demand could exceed supply and rents will start to grow again," said Mr. Nithipat Tongpun, director and head of Office and Retail Services at CB Richard Ellis Thailand.

Demand has fallen because of a weak domestic economy and also because of uncertainty of the proposed amendments to the Foreign Business Act controlling foreign investment in service companies. Many overseas companies have delayed expansion and there has been limited new foreign investment in the service sector. This has resulted in occupied offices falling dramatically. New net take up of office space fell by more than 30% in the first quarter on a year-on-year basis. This was the lowest quarterly take up since 2000.

Grade A office rentals in Bangkok had been rising with rent increasing approximately 10% a year since 2000. The second quarter of 2007 is the first time since the millennium that prime rentals actually dropped on a quarterly basis.

For the overall office market situation, CB Richard Ellis saw that weakening demand continued to put pressure on rentals in the first half of this year. Although the second quarter´s new take up of prime office space in Bangkok improved from Q1 2007, it was slightly lower than the same period last year. There were more inquiries for office space, but most of them were from small tenants, indicating that large expansion plans were still put on hold. Prime office supply continued to be limited in the downtown area. The total supply of prime office space in Bangkok remained unchanged, leading to the continued drop in the vacancy rate even with a small amount of new take up. The average occupancy rate for prime office space, however, was still high at 93% in Q2 2007.

"The office market is not likely to improve in the near term if the current political and economic uncertainties continue well into the second half of 2007. A rebound in take-up will be crucial to this year´s performance. The office market looks set to register a lower level of whole-year new take-up compared to last year´s 200,000 sq.m. of new take up. The situation could reverse if the demand comes back. Market sentiment seemed to improve slightly towards the end of the second quarter with public and private consumption increases and we hope this will stimulate the slowing economy and the office market," said Nithipat Tongpun.