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LATENT DEMAND TO DRIVE OFFICE MARKET IN 2008

By on Nov 29, 2007 in Office

The Bangkok office market in 2008 hinges on latent demand from multi-national companies which could rebound quickly once the policy direction toward foreign investment becomes clear, according to CB Richard Ellis, a leading international property consultant. If there is a more overseas investor friendly policy and a democratic government, investor confidence will be restored which will boost the office market next year.

CB Richard Ellis estimates that about 80% of the tenants in Bangkok’s เrade A office buildings in the central business district are multinational companies. “We have seen expansion delayed and few of new start ups due to a weak economy, political uncertainty and concerns about foreign ownership of companies in the services sector,” said Nithipat Tongpun, Director and Head of Office and Retail Services at CB Richard Ellis.

“If the economy improves and the government promotes foreign investment in services industries, then we could see a return to a level of demand for office space of around 300,000 sq.m. per year,” said Mr. Nithipat.

The total office supply in Bangkok was 7.47 million sq.m. at the end of Q3 2007. The overall vacancy rate was 11.9% and the grade A central business district vacancy rate was 6.6%.

Four new buildings, The Trendy on Sukhumvit 13, CyberWorld Tower on Ratchadapisek Road, Athenee Tower on Wireless Road and East Water on Vibhavadi-Rangsit Road will be completed by the end of 2007 adding 141,000 sq.m. to the office stock.

The total net new take-up in the first nine months of the year was 122,000 sq.m. and CB Richard Ellis expects that the total for the whole of 2007 will be around 150,000 sq.m. This will be 26.5% less than 2006 and 50% of the average annual take up between the years 2000 and 2005. Rents only increased by 2.2% in 2007 for grade A CBD offices.

The latest CB Richard Ellis Global Market Rent Survey reveals that London remains the most expensive office market in the world, with occupancy costs reaching about THB10,000 per sq.m. per month in the prime West End market and THB5,500 per sq.m. in the city of London.

The most expensive office rents in Asia can be found in Mumbai at THB5,780/sq.m./month, Tokyo at THB5,400 and Hong Kong at THB3,200. In Southeast Asia, office rents are highest in Singapore averaging about THB3,100 per sq.m. per month. Rents in Bangkok are trailing most cities in the region, achieving only about THB739 per sq.m. per month (US$22), or about one fourth of the average rent in Singapore. Prime offices in Ho Chi Minh City currently achieve THB1,360 per sq.m. (US$40).

In terms of rental growth, while the average prime rent in Bangkok grew only 2.2% y-o-y, Singapore topped the global rankings with the fastest growing rents, recording a staggering increase of 82.6% this year. Rents in other Asian cities such as Mumbai, Manila, Hong Kong and Ho Chi Minh City grew at 55.0%, 51.8%, 30.7% and 29.0%, respectively.  

In 2008, there will be at least 165,000 sq.m. of new supply, including the 90,000-sq.m. Chamchuri Square on Rama IV, the 45,000-sq.m. Interchange 21 at the Sukhumvit-Asoke junction and the 30,000-sq.m. Pakin Building on Ratchadapisek. Chamchuri Square will provide one of the largest floor plates in Bangkok with approximately 3,200 sq.m. per floor. The building will provide a direct access to the Samyan MRT station which lies under the building. Chamchuri Square is expected to be completed in the first quarter of 2008.  The 34-storey Interchange 21 is situated on one of the best locations in downtown Bangkok at the intersection of Sukhumvit and Asoke Montri roads and the BTS and MRT mass transit lines, opposite to Exchange Tower. The building will be completed in the second quarter of 2008.

CB Richard Ellis believes that even a small increase in demand will lead to rentals increasing in Bangkok because of the limited future supply.

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