Office market report

research Q4 2013 Office market report highlights • Demand for Bangkok’s office space grew in the 4th quarter of 2013, despite declining business con...
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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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Thailand Contacts Phanom Kanjanathiemthao Managing Director +66 (0)2643 8223 Ext 110 [email protected] Chaturawit Wattanapruk Executive Director +66 (0)2643 8223 Ext 120 [email protected] Surasak Limpa-Arayakul Executive Director, Head of Valuation and Advisory +66 (0)2643 8223 Ext 143 [email protected] Roong Sitthisankunchorn Executive Director, Head of Property Management +66 (0)2643 8223 Ext 144 [email protected] Marcus Burtenshaw Executive Director, Head of Commercial Agency +66 (0)2643 8223 Ext 121 [email protected] Frank Khan Executive Director, Head of Residential +66 (0)2643 8223 Ext 280 [email protected] Risinee Sarikaputra Director, Research and Advisory +66 (0)2643 8223 Ext 180 [email protected] Phuket Contact Nattha Kahapana Executive Director, Knight Frank Phuket +66 (0)7631 8151 Ext 300 [email protected]

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