Foreign firms still plan to open regional office in Thailand.

This means office space in Bangkok's central business district (CBD) could fall short of demand in two or three years, according to research from property agency Colliers International Thailand.

Company director Simon Landy said yesterday that the political uncertainty had actually had little impact on foreign investors with longterm investment plans. Companies with factories and other facilities in industrial estates outside Bangkok need office space in the capital.

Last week the Canadian firm, ACE INA Overseas Insurance signed an agreement to lease around 9,700 square metres of office space in Interchange 21, located at Sukhumvit Soi 21.

"Foreign investors with longterm investments in Thailand remain confident that the country's basic democratic and capitalist poli¬cies will not change," Landy said.

Landy said Thailand also has the potential to be a hub of backoffice business, such as accounting, telemarketing, IT and human resources. These sectors will contribute to the demand for new office space for the next three years.

"A number of property develop¬ers shifted their investment from office buildings to city condominiums and hotels in the last two or three years because those projects generated higher return on invest¬ment than office space," he said.

Meanwhile, market research from Knight Frank's Bangkok office for the first half of 2008 found that despite the opening of new buildings the market experienced lower vacancy rates, and unearthed evidence that showed that rental rates will hold firm despite the current turmoil.

Knight Frank's research shows that the average monthly rental rate of GradeA office now stands at Bt667 per square metre per month, up from Bt652 in the same period last year. Average GradeB office rentals are also up from the second quarter of 2007 to Bt528 per square metre per month, compared to Bt513 in the previous year. The Grade C sector's rental rate in the second quarter of 2008 is at Bt369 per square metre per month.

Vacancy rates of GradeA office buildings in the second quarter decreased from the elevated rate of 12.83 per cent of the previous quarter, to 10.28 per cent, as the new stock was taken up by the market. GradeB office buildings continue to experience the lowest vacancy rates of all grades, which today have only 6.84 per cent of their space sitting vacant. The average vacancy rates of GradeC office buildings also decreased from the previous quarter, which are now at just 9.69 per cent, which represents the lowest vacancy rates this sector has experienced since 1997.