Rising demand, stable supply to spark recovery

The research by the real-estate service firm found that the Grade-A segment in the central business district (CBD) would lead the recovery, as no new supply is planned for completion over the next two years.
The company’s managing director, Suphin Mechuchep, said that after a downturn lasting several years, the Bangkok office market was set to recover as demand continues to grow.
“In fact, the recovery process could have begun faster if demand had not been confined by political and economic uncertainties over the past three or four years,” Suphin said.
Though risk factors remain, whether they be political uncertainty or the potential impact of the sovereign debt crisis in the euro zone, very limited new supply of office space should ensure continuing recovery, even if demand expands at a slower pace because of those factors, she added.
The latest study by Jones Lang LaSalle showed there was 8.3 million square metres of office space in Bangkok, about 15 per cent of which remained vacant. Of the total, 1.36 million square metres was Grade A space in the CBD with a vacancy rate under 22 per cent.
The higher vacancy level in the Grade A market in the CBD is due to the recent higher concentration of new supply in this sub-market, which has been slow to fill up because of the soft demand conditions.
Findings from Jones Lang LaSalle’s preliminary year-end study reveal that net absorption of office space in Bangkok exceeded 175,000sqm in 2011, a level not seen since 2006.
In 2011, Jones Lang LaSalle concluded leasing transactions (including new leases and lease renewals) on behalf of landlords and tenants with combined area of 120,000sqm. In line with the overall market, more than 50,000sqm of this was additional space taken up by existing companies expanding business and new business set-ups, compared with 41,000sqm in 2010.
According to Jones Lang LaSalle’s study, Bangkok office rents stayed relatively stable in 2011 after declining for five years from the last peak in 2006. The average monthly rental for Grade A office space in the CBD now stands at Bt610 per square metre.
As further evidence of the office market moving in favour of landlords, fewer incentives are being offered. Rent-free periods are being shortened, and in some cases have been eliminated altogether. This is in contrast to 2008-2011, when rent-free periods of three to six months were commonly offered to new tenants.