Slowdown In Bangkok Office Market

The Bangkok office market experienced a slowdown in the first quarter of 2007. The reason for this lull is due to limited leasing activity and companies putting expansion plans on hold as political and economic uncertainties persist.

”The impact of the political uncertainty on the Thai economy has caused the country’s GDP forecasts to be revised downwards to 3.0-3.5% compared to the previous forecast of 4.0-4.5% following a decline in consumption and private investment,” said Suphin Mechuchep, managing director of Jones Lang LaSalle Thailand. “The impact is also being felt by the Bangkok office sector which has seen lower levels of new demand.”

Companies have a major concern over the softening economic outlook and foreign businesses are also worried about the proposed FBA revisions. All these issues have discouraged both local and multinational companies to expand this year, resulting in a slower growth of demand for office space.

Jones Lang LaSalle says it’s hard to predict to what extent the Bangkok office market will be affected by the current conditions. Optimistically, if the new economic stimulus measures launched by the government are successful, the FBA proposed revisions are more efficiently communicated to foreign businesses, and the new election takes place as scheduled, investor confidence may recover and the Bangkok office sector would benefit.

Caroline Murphy, head of Markets at Jones Lang LaSalle, commented: “Leasing activity in the Bangkok office market over the first quarter of this year was slow with lease renewals making up the majority of transactions in the market. Demand for office space from newly established companies has been limited with a “wait and see” attitude becoming increasingly more common.”

In Jones Lang LaSalle’s latest study, the average vacancy rate of office space in Bangkok’s Central Business District (CBD) fell from 12.9% in January to 11.4% in April. This is mainly because 16,500 sqm of office space in Thai Wah Tower II was converted for hotel use and consequently its tenants relocated to other office buildings. No new supply was completed in the CBD over the quarter.

The average rent of Grade A office premises in the CBD rose marginally from Bt660 per sqm per month in January to Bt666 per sqm per month in April. The less favourable trade conditions and a slower growth of demand for office space have caused landlords to become less aggressive in raising rental rates so existing tenants do not relocate.

Rental increases for the rest of the year are expected to be minimal in anticipation of new supply at the latter half of the year and in 2008.

“Hopefully, economic stimulus measures and anticipation of improved sentiment following the general election scheduled for December 2007 will provide impetus for office demand in the next twelve months. Otherwise the office market may experience increased vacancy rates and downward pressure on rental rates as a significant amount of new supply is planned for completion late 2007 and early 2008,” said Ms. Murphy.

Total office supply stock in Bangkok stood at 7.4 million sqm as at April 2007. Four new office developments with 139,500 sqm of combined lettable space are scheduled for completion in 2007 with Athenee Tower (45,000 sqm) being the only project located in the CBD area.