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  • 1. c o l l i e R s i n T e R n aT i o n a l | THailanD The Knowledge Report B a n g Ko K o f f i c e M a R K e T | 1 s T Q U a RT e R | 2 0 1 0 executive summary No new office supply came onto the market in Q1 2010 and only a very limited supply is expected until Q4 2010 with the scheduled opening of Sathorn Square. Very little relocation activity in Q1 reflecting the ongoing political impasse deterring companies MaRKeT inDicaToRs from making long term plans. 2009 - Q1 2010 Occupancy rates fell by 1% in the CBD and Outer CBD while the Northern Fringe recorded a nearly 1% increase in Q1. new sUPPlY Rental rates remained more or less the same in the CBD for Q1, although a fall in rates was more pronounced in the Northern Fringe. This was likely to be a correction to the steep rise in 2009. DeManD As of March 31st, no discernable impact on the office market has come about from the ongoing demonstrations. However if these become protracted and effect the CBD area then this could have RenTals a negative impact over time as leasing contracts expire. Investors are also likely to put expansion plans on hold or pull out completely. occUPancY office Zoning The general lack of zoning restrictions in Bangkok has led to the existence of significant office supply in a wide range of locations in the city and how the market has perceived the CBD has evolved over the past 20 years. The original CBD was located in the Silom and Surawongse roads, home to the vibrant gold market and other trading businesses. The development of modern office buildings with a larger floorplate in the nineties could not be accommodated in this area and the CBD began to take shape in the eastern section of Sathorn road. While Sukhumvit road up to Asoke is primarily perceived as an entertainment and residential area, a large number of grade A buildings sprung up in the nineties and also in the past few years. It is therefore considered as part of the CBD. As a working definition the CBD, for the purposes of office classification, is where a significant number of Grade A office buildings are located. As such the old CBD is considered Outer CBD as well as Petchburi road where more grade B offices are located. Over time this structure could evolve. www.colliers.co.th
  • 2. The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market Zoning 2 collieRs inTeRnaTional
  • 3. The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market HisToRical sUPPlY cUMUlaTive sUPPlY in BangKoK Source : Colliers International Thailand Research The office market landscape even today is a product of a five of around 186,000 sq m was completed which reflected the mori- year boom period from 1992 to 1996 prior to the Asian Financial bund property market in general in Bangkok at that time. It was Crisis. Even after the crisis projects continued to be completed only in the second half of the decade did growth in supply pick culminating in the 140,000 sq m Empire Tower in 1999, still the up with over four and half times more new supply being added in largest office building in the whole of Bangkok. The following the last five years compared with the first five. five years were a fallow period for the office market as only a total aDDiTional sUPPlY foR eacH YeaR Source : Colliers International Thailand Research collieRs inTeRnaTional 3
  • 4. The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market sUPPlY BY Zone office BUilDing sUPPlY BY Zone, 1994 Source : Colliers International Thailand Research The proportion of supply of office space by area shows how itself covers a wide area in Bangkok. Even with the Outer CBD decentralized the office market is in Bangkok and how over the included the figure still comes to well below half of the total. first 15 years this trend has become more pronounced. Less than 30% of office space is located in the CBD as of Q1 and the CBD 4 collieRs inTeRnaTional
  • 5. The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market office BUilDing sUPPlY BY Zone, Q1 2010 Source : Colliers International Thailand Research Regional coMPaRison ToTal sTocK of office BoTH cBD/non-cBD in selecTeD asia-Pacific coUnTRies Source : Colliers International Thailand Research / Colliers International Country Offices The diffuse nature of the Bangkok office market is highlighted by The interesting aspect of the office market in Thailand as a a comparison with other countries in the region. A much great- whole is that almost all office space is located in Bangkok itself er proportion of office space is located outside the CBD. The with only a negligible amount in the regions. Most office func- situation regionally is likely to change in favour of non-CBD tions take place in shophouses and townhouses in similar fashion locations due to the growth of the business process outsourcing to Phnom Penh in Cambodia. This contrasts with other Asian (BPO) market and this is especially evident in the Philippines countries which have office located in other parts of their coun- where a large number of offices are being built outside the Manila try such as Cebu in Philippines, Surabaya in Indonesia, Penang CBD as well as other cities such as Cebu. in Malaysia and Busan in Korea. collieRs inTeRnaTional 5
  • 6. The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market office siZe aveRage siZe of office BUilDing accoRDing To aRea Source : Colliers International Thailand Research The Outer City West has the highest average size in Bangkok space limitations and smaller, older buildings located in west Si- but due to the limited number of offices in this area, one build- lom and Surawongse. One notable feature is the smaller sizes in ing; the Thai Farmers Bank Head Office, with over 74,000 sq m the Outer City East. In many Asian cities large office buildings of NLA, raises the average somewhat. The CBD comes in sec- are located outside the centre in order to accommodate the BPO ond place largely due to the number of grade A office buildings industries which often require a large floorplate but low rentals. containing a large floorplate and consequently greater building size. The smaller sizes reflected in the Outer CBD reflects the sUPPlY BY owneRsHiP sUPPlY BY owneRsHiP, Q1 2010 Source : Colliers International Thailand Research A significant number of offices are multi-owner in what are also fective for companies operating in non-working hours. However referred to as office condos. Almost all of these were built prior there are disadvantages in the form of sometimes uncoordinated to 2000 when investors were looking to make rapid capital gains property management and more expensive air conditioning sys- during the boom period that preceded the economic crash in tems for companies using office predominantly in working hours. 1997. There are some advantages of occupying multi-owner of- However occupancy rates are in general higher in multi-owner fice such as separate air conditioning systems which are cost ef- offices. 6 collieRs inTeRnaTional
  • 7. The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market fUTURe sUPPlY fUTURe sUPPlY BY locaTion Source : Colliers International Thailand Research It is interesting to note that future supply for the next couple of While the trend in other cities in the region is to focus away years will occur predominantly in the CBD area while no new from the CBD the situation in Bangkok is reversed as there is supply will be constructed outside the Outer or Inner CBD. In already a large proportion of existing supply located outside the fact the new supply will consist of only three projects with the CBD. lion’s share coming from Sathorn Square at the end of 2010. DeManD – TaKe UP occUPancY RaTe BY locaTion, Q1 2010 Source : Colliers International Thailand Research The Outer City West area has the highest occupancy rate, due and Outer City East is the likely reason for the lower occupancy to only 18 office buildings being located in this area and a low rates in these locations. rental rate. The lack of mass transit lines in the Southern Fringe collieRs inTeRnaTional 7
  • 8. The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market DeManD BY gRaDe Source : Colliers International Thailand Research The highest demand in Q1 2010 was for Grade B buildings which registered a higher occupancy rates. DeManD DRiveRs Thailand remains in fourth place in the A.T. Kearny’s Global is the dramatic rise of Vietnam, up nine places to tenth spot. Services Location Index 2009 compared to 2007. This index A number of very large BPO companies have set up shop in the ranks the top 50 countries worldwide for locating outsourcing outer districts. While Thailand could benefit from the enormous activities, including IT services and support, contact centers potential growth it lags in relation to certain skills, especially and back-office support. While ahead of Indonesia (5th) and second languages, that prevent it form being regarded as a key Philippines (7th) it remains firmly behind Malaysia, China player. and the king of them all, India. The Phillipines is making great strides to become a key BPO centre. The other ominous sign 8 collieRs inTeRnaTional
  • 9. The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market exPoRTs fRoM THailanD on QUaRTeRlY Basis Colliers International Thailand Research Source : Bank of Thailand Industrial growth is the main driver that powers the office mar- demand for office space although ongoing financial problems ket as this leads to the need for trading, financial, legal and in Europe and the general retracement of fiscal stimulus in the insurance services amongst others to support it. After a dramatic majority of Thailand’ exports partners could spell many drop in exports starting at the end of 2008, they have started problems, exacerbated by foreign currency weakness of the to recover in the last three quarters. This bodes well for future Euro. ToTal fDi foR vaRioUs secToRs as PeRcenTage 2000-2004 Colliers International Thailand Research Source : Bank of Thailand collieRs inTeRnaTional 9
  • 10. The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market ToTal fDi foR vaRioUs secToRs as PeRcenTage 2005-2010 feBRUaRY Colliers International Thailand Research Source : Bank of Thailand The charts show the predominance of industry in FDI spending very little investment is made into businesses that directly drive compared with the services and financial sectors. However the office demand. The fact that the Board of Investment has largely financial sector has held greater promise over the past five years focused their attention on the industrial would partially account but the services sector still continues to languish. Much of this for this. FDI would be related to the hospitality industry and therefore occUPancY occUPancY RaTe in 3 locaTions, 2001 – Q1 2010 Source : Colliers International Thailand Research The occupancy rate in the CBD area fell approximately 1% and new supply coming on stream accompanied by steady economic in the Outer CBD a similar decrease was recorded. However the growth which drove overall demand. However the second half of Northern Fringe recorded a 0.9% increase which is likely due to the 2000’s was a period of relative stagnation in the market due the falls in rental rates. The overall rise in occupancy rates for to political tensions in the country alongside the global financial the first half of the last decade can be attributed to the limited meltdown in 2008. 10 collieRs inTeRnaTional
  • 11. The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market RenTal RaTe RenTal RaTe BY Zone Source : Colliers International Thailand Research Unsurprisingly the CBD commands the highest rental rates due located some distance from mass transit lines. While Colliers to the location and number of grade A buildings. Interestingly International Thailand have research that shows that rents in the Northern Fringe are considerably higher than the condominium prices are higher the closer they are to mass transit Outer CBD. This could be explained by the fact that a signifi- stations, the same seems to be the case for offices. Being located cant number of offices are located close to both the BTS and near a mass transit station is preferable for both employees and MRT lines in the area while most offices in the Outer CBD are business visitors alike. BY gRaDe Source : Colliers International Thailand Research Grade A offices have greater rental rates than those of grade B. that competition between these grades is intense and tenants see The difference between grade B and C is rather small reflecting less distinction between the two. collieRs inTeRnaTional 11
  • 12. The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market RenTal RaTe HisToRical RenTal RaTe in 3 Main locaTions, 2001 – Q1 2010 Source : Colliers International Thailand Research In Q1 2010, rental rates for office buildings in CBD area fell in the Northern Fringe but this was likely to be a correction after slightly by 0.3% compared to Q4 2009. Rates fell more sharply the steep rise in the previous year. BY gRaDe Source : Colliers International Thailand Research Rental rates of grade A office building have remain stable from favourable terms for tenants to maintain occupancy during 2007 while grade B recorded a small drop. Colliers International difficult economic times, especially for small businesses. Thailand have noticed that some landlords have offered more 12 collieRs inTeRnaTional
  • 13. The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market foRecasT Limited new supply for the next two quarters is likely to main- resuming their growth strategies on the back of an increase in tain current rental and occupancy rates despite ongoing political industrial activity. tensions dampening demand. The addition of Sathorn Square in Q4 2010 will be a significant amount of space to absorb if the A widening of incentives from the Board of Investment for the current impasse continues throughout the year. non-hospitality service sector would help encourage growth in the burgeoning BPO market as well as other areas that can help Limited market activity is expected for Q2 due to the ramping to drive demand for office space. A focus on the regions would up of political tensions that could define that quarter. A return help kick start office development where it is currently non-ex- to stability could lead to a rise in occupancy due to companies istent. collieRs inTeRnaTional 13
  • 14. The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market collieRs inTeRnaTional THailanD 480 offices in 61 coUnTRies on 6 conTinenTs ManageMenT TeaM Us$ 1.9 Billion in annUal RevenUe 1.1 Billion sQUaRe feeT UnDeR ASSET MANAGEMENT ManageMenT Wasan Rattanakijjanukul | Manager 15,000 PRofessionals Nukarn Suwatikul | Manager CONSULTANCY Napart Tienchutima | Manager COMMERCIAL / INDUSTRIAL /RETAIL Narumon Rodsiravoraphat | Senior Manager FACILITY / PROPERTY MANAGEMENT Viroj Piromthong | Management Advisor Bandid Chayintu |Associate Director conTacT infoRMaTion HOSPITALITY DEPARTMENT Jean Marc Garret | Director THailanD: INVESTMENT Patima Jeerapaet Antony Picon Nukarn Suwatikul | Senior Manager Managing Director Senior Manager | Research patima.jeerapaet@colliers.com antony.picon@colliers.com RESIDENTIAL Surachet Kongcheep Patima Jeerapaet | Managing Director Manager | Research surachet.kongcheep@colliers.com RESEARCH & ADVISORY Antony Picon | Senior Manager Surachet Kongcheep | Manager Colliers International Thailand VALUATION Nicholas Brown | Associate Director Bangkok Office : 17/F Ploenchit Center, Klongtoey Thanussorn Aukkrararerksaponk |Manager Bangkok 10110 Tel: 662 656 7000 Fax: 662 656 7111 Email : info.th@colliers.com Pattaya Office : 492/2 Thappraya Road, Nongprue, Banglamung Chonburi 20150 Tel: 6638 364 411-2 Fax: 6638 364 414 Email : info.pattaya@colliers.com This report and other research materials may be found on our website at www.colliers.co.th. Questions related to information herein should be directed to the Research Department at the number indicated above. This document has been prepared by colliers international for advertising and general information only. colliers international makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. any interested party should undertake their own inquiries as to the accuracy of the information. colliers international excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. colliers international is a worldwide affiliation of independently owned and operated companies. 14 collieRs inTeRnaTional www.colliers.co.th