With a more stable and predictable political situation in recent months, business sentiment has improved, which will likely release pent-up demand for Bangkok office space, according to Jones Lang LaSalle (Thailand).
This, coupled with tight supply, will allow office rents to rise further in the rest of the year, Yupa Sathienpabayut, director of office leasing, said recently.
The political uncertainty seen in the first half softened business sentiment and caused some companies to postpone leasing decisions. Also, 2013 was a record year in the post-1997 crisis period for the Bangkok office market in terms of annual rental growth and annual net absorption.
The market also enjoyed extra demand from companies with expansion plans rushing to secure space in fear of rising rents and limited supply.
All of these factors contributed to slower growth in demand in the Bangkok office market in the first half of this year.
The latest Bangkok Property Market Outlook report released by the company’s Thailand Property Intelligence Centre revealed that net absorption of office space in the capital declined from 87,600 square metres recorded in the first half of last year to 60,000m2 in the first half of this year.
Despite weaker demand, average market-wide gross rents registered a 2.8-per-cent increase during the first six months of this year, and a 17.3-per-cent increase from the previous peak in 2007.
Rents in prime grade buildings in the central business areas saw a 1.2-per-cent increase in the first half of this year, and a 9-per-cent increase from the previous peak in 2007.
Bangkok’s total office stock stands at 8.18 million square metres. The market-wide vacancy rate dropped to 9.7 per cent at the end of June, a record low level since the company began tracking office vacancy in 1995.
Prime grade buildings in the central business areas enjoyed a lower vacancy rate of 8.2 per cent.
As of the end of June, average monthly gross office rents reached Bt475 per square metre per month across Bangkok and Bt739 per square metre in prime buildings in the central business areas, representing all-time highs.
Some prime buildings are asking much higher rents ranging from Bt900-Bt1,300 per square metre.
Three new office projects are planned for completion in the second half of this year – SJ Infinite 1, formerly known as Equinox Phahol-Vibha, on a corner of the Phaholyothin-Vibhavadi intersection, AIA Capital Centre at the subway’s Thailand Cultural Centre station and Bhiraj Tower at the Skytrain’s Phrom Phong station, which will bring total office supply to 8.31 million square metres by year-end.
While these projects have healthy pre-commitment levels, their introduction into the market is expected to cause a short-term increase in vacancies as the new space fills in.