Demand for office space in Bangkok is likely to pick up as the economic outlook improves and political turbulence affects the market less than expected, according to the latest research by Jones Lang LaSalle.
Managing director Suphin Mechuchep said last week that the political demonstrations in April-May had caused business interruptions in central Bangkok and a short halt in leasing activity in the office market.
"Nevertheless, conditions have returned to normal more quickly than expected and we saw leasing activity in the office market resuming."
Despite the political turbulence in the second quarter, there remains some good news for Thailand, as the government last month raised its forecast for gross domestic product growth this year to as much as 6 per cent, while a recent forecast by the International Monetary Fund was more positive, saying the economy may expand 7-8 per cent this year, she said.
This is also good news for the Bangkok office market, as economic growth would allow companies to expand business and consequently require more office space.
The average gross rent for Grade A office space in the central business district (CBD) dropped only slightly by 0.5 per cent in the second quarter to Bt635 per square meter per month from Bt638 in the first quarter.
While no new Grade A office supply entered the market in the second quarter, the average vacancy rate in the CBD rose slightly from 18.5 per cent in April to 19.5 per cent in July. This was due largely to the relocations of some corporate occupiers to areas outside the CBD.
For instance, SCB Securities and SCB Asset Management relocated to SCB Park on Phaholyothin Road, while Citigroup transferred to Interchange 21 on Asoke Road.
Leasing activity is picking up but pressure on rents continues due to slow demand and growing supply in the second half.
Yupa Sathienpabayut, head of commercial leasing, said leasing activity in the Bangkok office market saw a marked slowdown during the anti-government protests from April-May. Over the period, there was no demand for office space from newly established businesses while existing occupiers planning expansions shelved their plans. However, after the protests came to an end, leasing activity started to come back, showing that the impact of the recent political turbulence was limited.
Office vacancies are expected to rise further in the remainder of the year and will put more pressure on rents. This is because a considerable amount of new office space will enter the market in the second half, while demand is in its early stage of recovery and so its pace of growth remains slow.
About 77,600 square meters of additional space from two buildings will enter the CBD office market in the second half and will raise the total CBD Grade A supply to 1.33 million sqm by year-end.
The market is likely to recover next year in response to the brighter economic outlook.
Since 2007, economic growth and demand for office space have slowed. GDP grew 4.8 per cent in 2007 and 2.5 per cent in 2008, and saw a contraction by 2.2 per cent in 2009.
Demand for office space over the same period was on the same track, with the net take-up levels from 2007-2009 averaging slightly over 55,000 sqm per year. This is in contrast to the average annual take-up rate of over 250,000 sqm from 2000-2006 when the country witnessed annual economic growth of above 6 per cent.
"Provided that the Thai economic growth in 2011 continues at the same pace as in 2010 or faster, we expect leasing activity in the Bangkok office market to surge significantly next year. This is because there has been a huge backlog of demand in the office market as companies have put their expansion plan on hold over the past five years due to the political and economic uncertainties," Yupa said.