Published on July 06, 2006 - Occupancy high, despite 4 new buildings in 2005

Bangkok's office vacancy rates are the third lowest in the Asia-Pacific region, behind only Hong Kong and Shanghai, according to a report by international property consultant Knight Frank Chartered (Thailand).

Knight Frank Chartered (Thailand) director Marcus Burtenshaw said the Bangkok office market was expected to remain strong. Vacancy rates are relatively stable as new stock is absorbed, and office rents should continue to increase throughout the rest of this year and next.

Burtenshaw reported 4.8 million square metres of office space currently available in Bangkok and a further 3 million square metres of owner-occupied space. Supply increased in the final quarter of last year, as four new buildings came on stream, which in turn led to a corresponding increase in vacancy rates.

However, the higher vacancy rates are expected to have a very limited impact on rental growth. If they do, it may cause rental growth to slow initially, but growth should return over the next six months.

"In our view, this is only a temporary situation, as the new buildings are expected to fill up throughout the year," he said.

Japan finally appears to be emerging from its long recession, with a key consumer and market survey hinting at increased business confidence and consumer spending. Grade A vacancy rates continue to decline, which should sustain last year's rental growth.

Similarly, Singapore's office market is  tight as a result of strong demand from financial and business-services tenants reaching levels not seen since the 1997 Asian economic crisis. The much-anticipated One Raffles Quay development is due for completion this year and will add 121,000 square metres to the market, much of which has already been leased.

Shanghai and Beijing office development continues picking up steam but the market is now in danger of becoming saturated. Rents are unlikely to see a great adjustment, although a stabilisation or slight decline in prime rents in key centres is likely.

Western outsourcing continues to bolster the Indian market, with significant demand from IT, business-process outsourcing and call centres. Developers have responded by providing high-quality office space but have barely been able to keep up with demand. This has continued to exert upward pressure on capital values and rents.

The Kuala Lumpur office market continues to strengthen as business confidence improves. A 10-per-cent increase in prime rents and growth last year is expected to continue throughout this year, but at a moderate rate.

The Hong Kong office market continues on a path of rapid rental growth and strong take-up, and the outlook remains positive. Sustained demand and limited supply coming into the market this year is likely to fuel further substantial rental growth. Last year's final quarter saw an 805-per-cent rise in rental values, bringing market rents above the levels achieved prior to the Asian economic crisis. Investment activity was reserved last year as higher interest rates led to many investors taking a "wait-and-see" approach.

However, interest rates are expected to level off, which - in conjunction with the strong fundamentals underlying the occupier market - should see increased investor activity.