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Grade A office rents managed to creep up by 1.7 per cent

Despite the political unrest in Bangkok, Grade A office rents managed to creep up by 1.7 per cent over the quarter, as 39,000 square metres of space was absorbed, leading to a fall in the vacancy rate, according to Knight Frank Thailand Research.

Although the uncertainty is likely to soften demand over the coming months, the lack of new supply is likely to underpin further rental growth this year.

However, in spite of the challenges, the Bangkok office market has remained one of the least volatile in the Asia-Pacific region. Demand has been growing steadily since 2011, pushing rents closer to record levels with vacancies rates falling across the market. Limited supply is likely to continue to push rents higher, albeit at a slower rate.

Only one building, Wing A of the 9th Tower on Ratchadaphisek Road, was completed this quarter, increasing office supply by 23,530m2 to 4,474,227m2.

In the fourth quarter of last year, occupied space increased to 4,038,166m2, bringing the overall office occupancy rate to 90.25 per cent, an increase from the last quarter of 0.64 percentage point and 2.76 percentage points from last year.

The Grade B sector had the highest occupancy rates with just 8.04 per cent of available space, after occupancy rates climbed 0.21 percentage point in the third quarter. This quarter, Grade A office space was demanded the most of all grades, with about a 4-percentage-point increase.

Office rents rose by 5.2 per cent year-on-year, and there has been a rental uplift in all office grades in the fourth quarter of last year. The highest increase was in the Grade A segment, which saw rents climb by 1.72 per cent quarter-on-quarter or 6.89 per cent year-on-year. This was followed by Grade C and Grade B rent growth at 4.34 per cent and 3.80 per cent.

Ploenchit and Wireless Roads command the highest office rents, fetching up to more than Bt1,000 per square metre per month with a potential rental growth of up to 7.76 per cent year-on-year.

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Among non-central business district (CBDs) areas, Sukhumvit-Asoke is a prime location with the capability of commanding rents as high as the CBD location. The highest rates are over Bt900 per square metre per month at a 8.18-per-cent year-on-year growth rate.

Taking a broader view of rents across the region, Knight Frank's Asia-Pacific Prime Office Rental Index edged up 0.8 per cent in the fourth quarter of last year. It now sits at 3.1 per cent above its pre-crisis peak in the second quarter of 2008. Only a handful of markets, including Brisbane, Perth, Guangzhou, Shanghai and Hanoi, saw rental declines over the period.

The region-wide vacancy rate increased slightly to 12 per cent on the back of significant construction completions. Net absorption bounced back, increasing 19 per cent on the previous quarter to give a strong end to the year, most notably in Southeast Asia.

Jakarta continued to see the highest prime rental growth in the region with 8.4 per cent. Although rental growth is expected to continue, the upcoming election and significant supply entering the market are likely to slow this growth over the coming months.

Malaysia and Vietnam look to be at the bottom of the cycle, and while there is a feeling that things can only get better in Vietnam, the Kuala Lumpur office market is likely to remain sluggish, with a high vacancy rate.

Recovery in the office market continued in Tokyo, as prime rents increased 4.2 per cent, with corporate earnings boosted, leasing activity up and vacancy rates down across all wards.

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China's slowdown has led to mixed performance across its Tier-1 cities. Beijing and Guangzhou saw prime rents soften slightly while Shanghai saw rents increase by 0.7 per cent - although the significant amount of new supply scheduled until 2020 continues to fuel worries of future redundancy in some areas.

Hong Kong Central office rents have continued to melt as occupiers remain cost-conscious and absorption remains subdued. Grade A office leasing is set to remain stable throughout the year.

India witnessed rental stagnation in the three main cities tracked, with economic difficulties and the upcoming election continuing to cause some uncertainty. Knight Frank's research supports the view that stakeholders are sceptical and anticipate a contraction in demand over the next six months.

Australia continued to see its rental market soften with rising incentives in all major CBDs. With GDP growth below trend and the investment phase of the mining boom passing its peak, a key concern is how the country can encourage broader-based growth.


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