From a few modest low-rises clustered on Silom and Surawong roads in the
1980s, office development has expanded along mass transit routes and brought
mercantile monoliths to much of the city
Bangkok now has more than eight
million square metres of office space, 84% of which has been developed in just
the past two decades. Of the total, 41% or nearly 3.33 million square metres
was completed during the economic boom years of 1991-95. The pace slowed in the
next five years, understandably because of the 1997-98 Asian financial crisis,
but developers still managed to add 2.3m sq m to the capital's office market,
with another 1.1 million sq m completed since 2000.
The first area in which office
buildings emerged in Bangkok was around Silom and Surawong roads, which has
expanded over the years. Most office buildings completed before 1980 were in
this area, which was home to the vibrant gold market and other trading
businesses. None of these first buildings were large _ the average is only
8,000 sq m, with some smaller than 4,000 sq m.
Many modern office buildings with
larger floor plates or building areas of more than 50,000 sq m were begun in
the 1990s on other main roads such as Sathon, Sukhumvit, Rama IV,
Ratchadaphisek, Rama I and Witthayu. With the growth of commercial activity,
office development has continued to expand.
MASS TRANSIT EFFECT The area
around Silom and Surawong roads still represents the biggest share of the
office building market in Bangkok with around 36% of the total supply, followed
by the area along Ratchadaphisek and Phahon Yothin roads with around 20%.
However, only a very limited number of office buildings have been completed in
and around Silom Road in the past decade or so, due to the increasing land
prices in the area, especially along the BTS line.
The opening of the BTS in 1999
and the MRT in 2004 has driven the expansion of office development to new areas
along the mass transit lines, and in pushing up office demand along the BTS and
MRT lines. Being located near a mass-transit station is preferable for both
employees and business visitors alike, so it's not surprising that most of the
Grade A office buildings are located along the BTS line.
The increase in land prices
around Silom Road, and the areas along BTS lines, especially on both sides of
Sukhumvit Road, has been the main obstacle to the development of new office
buildings in the Silom area. Because of this, some new buildings completed in
the past few years are located on Ratchadaphisek Road, which is touted by some
as a prime business district of the future. With good access via the MRT and
other facilities similar to those in the Silom area, as well as lower land
prices, there is no question that Ratchadaphisek has become highly attractive
for new development.
FUTURE SUPPLY Nearly 290,000 sq m
of office space is scheduled to be added to the market in Bangkok by 2014 in
only three zones. The area around the junction of Ratchadaphisek and Rama IX
roads will contribute a high proportion of the total supply, with more than
125,000 sq m scheduled for completion in 2014, although the total future supply
in this area represents only a 2.6% increase in the total existing supply.
In addition, the latest draft of
the new Bangkok town planning regulations allows office buildings larger than
10,000 sq m along Ratchadaphisek Road, while more conditions affect the Silom
and Surawong areas. This limited additional space will be absorbed by the
market and points the way to greater occupancy levels and strengthened rental
rates over the next few years. Especially in the Silom area, the limited supply
projected from 2011-14 is the main driver pushing up occupancy and rental rates
of office buildings in 2012 and 2013.
RENTS: Selling prices for
residential condominiums closer to mass-transit stations tend to be higher than
for those farther away, and that also seems to be the case for offices. A
number of offices have direct access to a BTS station which further adds to
their appeal. The average rental rate per square metre per month at office
buildings less than 200m from a BTS or MRT stations is the highest at more than
640 baht, while buildings located more than 1,000m from a mass-transit station
command only 500 baht per sq m per month on average.
In addition, Grade A office
buildings less than 200m from a BTS or MRT station are asking nearly 700 baht.
OCCUPANCY RATE: The average
office occupancy rate of all locations in Bangkok is more than 84% and the
highest is in the Silom area, at 86% as of the third quarter of 2012, a slight
increase from the previous quarter. This was due to new companies leasing
office space, as well as to some of those already in the area expanding their
existing offices. The average occupancy rate increased everywhere due to
positive signs in Thailand's economy and politics, with foreign and local
investors setting up or expanding their companies in Bangkok. The city is the
best location for companies looking for new opportunities in Myanmar, Laos and
Cambodia.
OTHER FACTORS: Although the
eurozone debt crisis has affected the global economy and become the main
concern of foreign investors, it is also a positive factor for newer markets such as Asia, especially Asean.
Many multinational companies are looking for opportunities in Myanmar, Cambodia
and Laos by setting up their operations offices in Thailand to pursue new
business in Asean.
The increase in the minimum daily
wage has directly affected the cost of property management, which is forecast
to increase by anywhere from 20% to 40%. This will also be a major factor
affecting rental rates in the future, although landlords are trying to maintain
current rents by reducing staff and installing CCTV systems to replace security
guards, but they cannot keep control of all costs in the long term. In
addition, the designs of office buildings in the future may be more high-tech
and management-friendly, including features such as having a single control
room for all of the building's systems.
Surachet Kongcheep
Business & Investment Opportunities
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