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Q4 2013
Office market report highlights • Demand for Bangkok’s office space grew in the 4th quarter of 2013, despite declining business confidence. • In Q4 2013, the only new supply that entered the market was Wing A of the Grand 9th Tower • Several Grade A office buildings are being constructed or planned in the New Business District, close to the Rama 9 – Rachadapisek intersection. • The average recorded office occupancy rate broke the 90% level for the first time in 6 years at 90.25%, which increased from the last quarter by 0.64% and 2.76% year-on-year. • Rental rates across all office grades increased again in Q4, especially the Grade A office sector that saw rents grow by 6.89% year on year.
Q4 2013
OfficE Market report
market overview
Despite unrest in Bangkok, Grade A office rents grew by 1.7% over the quarter, given 39,000 sq. m. of net absorption and a falling vacancy rate. Although the uncertainty caused by ongoing events is likely to soften demand over the coming months, the lack of new supply is likely to underpin further rental growth in 2014. Figure 1
Remarks: *economic growth in 2014 is a projected data. Source: National Economic and Social Development Board, IMF, World Bank, Bank of Thailand and Asian Development Bank
The Thai economy grew at 2.6% in 2013 but economic headwinds stemming from the political uncertainty remain strong, which prompted analysts in January to forecast growth rates for 2014 between 3.6% and 4.9% (projected by IMF: 3.6%, World Bank: 4.5%, Bank of Thailand: 4.8% and Asian Development Bank: 4.9%), but these may be revised downward should the political crisis drag on, with more recent estimates indicating growth of between 2 to 3%.
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Figure 2
Business Sentiment Index
Source: Bank of Thailand Remarks: 1/ Business Sentiment Index is compiled from BOT survey data of 1,010 businesses. 2/ Below is the interpretation of the index: Index = 50 indicates that business sentiment remains stable. Index > 50 indicates that business sentiment has improved. Index < 50 indicates that business sentiment has worsened.
The Business Sentiment Index (BSI) dipped to its lowest point in two years in December 2013 after recovering from the floods of 2011, signalling concern from entrepreneurs and investors over domestic consumption, household debts, currency fluctuation, and unfavourable tension from the ongoing political situation, which is likely to cause delay in previously announced private and public investment. However, despite the conditions, the Bangkok office market has remained one of the least volatile in the Asia Pacific region. Demand for office space has been growing steadily since 2011, pushing rents closer to record levels with vacancies rates falling across the market. While this may soften due to political uncertainty, limited supply is likely to continue to push rents higher, albeit at a slower rate.
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Q4 2013
OfficE Market report
Figure 3
Prime Office Rents
Figure 4
Asia-Pacific Prime Office Rents, Q4 2013
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SUpply
Figure 5
Office Market
Source: Knight Frank Thailand Research Note: These figures exclude multi-owner occupied premises and office buildings smaller than 5,000 sq.m.
Only one new building, Wing A of the 9th Tower on Rachdapisek, was completed this quarter, increasing the total office supply by 23,530 sq.m. to 4,474,227 sq.m.
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Q4 2013
OfficE Market report
future supply
We expect to see an additional 149,735 sq.m. of office space enter the Bangkok market in 2014.
Table 1
Lettable Space (sq.m.)
Completion
The 9th Tower B
23,530
Equinox
19,205
AIA Capital Center BHIRAJ Tower at EmQuartier
Future Supply
Location
Zone
Q1 2014
Rama 9
Non-CBD
Q2 2014
Paholyothin
Non-CBD
54,000
Q3 2014
Ratchadapisek
Non-CBD
47,000
Q4 2014
Sukhumvit
Non-CBD
Magnolia Ratchadamri Boulevard
6,000
Q3 2014
Ratchadamri
CBD
G-Land Tower
65,630
Q4 2015
Rama 9
Non-CBD
Golden Land Rama IV
48,071
Q4 2015
Ratchadapisek-Rama IV
Non-CBD
AIA Sathorn
38,500
Q1 2015
Sathorn
CBD
BHIRAJ Tower at BITEC
31,880
2016 +
Bangna
Non-CBD
Gaysorn II
30,000
2016 +
Rajdamri
CBD
Asean Media Complex
80,000
2016 +
Ratchadapisek
Non-CBD
Unnamed Project by Major Development
15,000
2016 +
Sukhumvit
Non-CBD
BHIRAJ Tower at Sathorn
30,000
2020 +
Sathorn
CBD
Source: Knight Frank Thailand Research Note: The new supply is exclusive of the office buildings that were built and occupied by the owners.
We define the ‘CBD’ as “the location with the greatest concentration of retail and Grade A office buildings”. In Bangkok this ‘boot’ shaped area is anchored by Lumpini Park, bordered by Ploenchit to the north; Wireless to the east; and Rachadamri to the west, including Rama 4, Silom, Sathorn and Narathiwas roads to the south-west.
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Figure 6
Future Supply
Source: Knight Frank Thailand Research
Demand
Figure 7
Occupancy by grade
Source: Knight Frank Thailand Research
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Q4 2013
OfficE Market report
Table 2
Occupancy Rate (%) Grade
A
B
C
Overall
Q1 2013
87.37%
89.41%
88.40%
88.23%
Q2 2013
87.40%
90.84%
89.06%
88.81%
Q3 2013
88.62%
91.75%
89.38%
89.61%
Q4 2013
89.69%
91.96%
89.82%
90.25%
Q-o-Q
1.07%
0.21%
0.44%
0.64%
Y-o-Y
3.99%
2.82%
1.49%
2.76%
Source: Knight Frank Thailand Research
In Q4, occupied space increased to 4,038,166 sq.m., bringing the overall office occupancy rate to 90.25%, an increase from the last quarter of 0.64% and 2.76% from last year. The Grade B sector had the highest occupancy rates with just 8.04% of available space, after occupancy rates climbed 0.21% in the third quarter. This quarter, Grade A office space was demanded the most of all grades, with an approximately 4% increase.
Table 3
Office Rental Rate (THB/sq.m./month) Grade
A
B
C
Overall
Q1 2013
669.72
542.98
411.29
541.33
Q2 2013
676.63
552.98
415.31
548.30
Q3 2013
685.16
555.45
419.19
553.27
Q4 2013
696.94
559.53
423.30
559.93
Q-o-Q
1.72%
0.73%
0.98%
1.20%
Y-o-Y
6.89%
3.80%
4.34%
5.20%
Source: Knight Frank Thailand Research
Office rents increased by 5.2% YoY, and there has been a rental uplift in all office grades in Q4. The highest increase was in the Grade A segment, which saw rents climb by 1.72% in QoQ or 6.89% YoY. This was followed by Grade C and Grade B rent growth at 4.34% and 3.80%, respectively.
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Figure 8
Inflation Rate vs Office Rental Growth
Source: Bureau of Trade and Economic indices Ministry of Commerce and Knight Frank Thailand Research
Amongst the declining trend of the inflation rate in 2013, the average office rental growth increasingly outpaced the inflation rate, as vacancy rates continue to drop in all segments of the market.
Rents by Location
The Central Business District is defined as “the area within the city that has the greatest concentration of prime commercial buildings”. In Bangkok, this area is broadly defined as a ‘boot shaped’ area between Silom to Sathorn, and Rajadamri and Wireless Roads along Ploenchit and Rama I. Ploenchit and Wireless Roads command the highest office rents in Bangkok, where the highest rent fetch more than 1,000 baht/sq.m./month with a potential rental growth of up to 7.76% YoY. Amongst non-CBD areas, Sukhumvit – Asoke is a prime location with the capability of commanding rent as high as the CBD location; the highest rates are over 900 baht/sq.m./ month at a 8.18% YoY growth rate.
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Q4 2013
OfficE Market report
The following graph shows the range of office rents by location across Bangkok: Figure 9
Rent by Major Roads
outlook
In 2010, very few office tenants left the market or downsized their operations. As such, the Bangkok office market was able to weather that relatively short-lived political storm. Rather than leaving during times of uncertainty, office tenants in Bangkok have tended to revisit their expansion and investment plans, often taking a ‘wait and see’ approach, which tapers demand. Falling vacancy rates and limited new supply should continue to support further rental growth in 2014, even in the wake of softer demand due to the political uncertainty, so long as the country is able to extricate itself from this political maelstrom in the near term.
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