Time catching up with ageing offices in prime CBD areas

There are many buildings which have become obsolete in terms of design, layout and out of line with today’s tenant requirements. These buildings are losing competitiveness to newer buildings which are achieving higher rents and occupancy, despite being located in prime and desirable locations and offering access to the BTS and/or MRT.
Renovating and upgrading the buildings is one option to sustain competitiveness. However, in many cases renovation is not the ideal option and merely offers a short-term solution. Old buildings pose limitations in terms of ceiling heights, columns and structural features which cannot be altered through a renovation. These limitations create challenges in delivering a new and improved space that will meet today’s tenant requirements such as high ceilings, column-free floor plates and energy saving features.
In such cases, demolishing the existing structure and re-building is the best way forward. The time has come for landlords of old and obsolete office buildings to consider redevelopment in order to maximise returns.
In a new development, over half the development cost will be the land acquisition.
With land prices in prime CBD areas reaching Bt1.5 to Bt2 million per sq. wah, developing new office or mixed-use schemes on a recently acquired piece of land is rarely financially feasible. For existing landlords, the land component is eliminated from the development costs and the original acquisition and investment costs would have already been recouped over the years of the building’s existence.
Redeveloping on existing land offers an opportunity to better utilise the land and increase the ROI in the medium to long-term. In some areas, rebuilding will also mean the ability to build to a higher plot ratio and increasing the for-lease area as plot ratios allowed in the past are typically lower.
After completion, the buildings will also be able to achieve higher rents which are more in line with today’s achieved market rates. There are currently several buildings undergoing redevelopment, for example: Kian Gwan Building on Wireless Road, Vanissa Building on Chidlom and Sriboonruang Building which is located in the heart of Silom.
The redevelopment of Sriboonruang is a joint-venture between MINOR Group and NYE Estate where land has been acquired on a 50-year lease from the existing building owner and will be redeveloped into a mixed-use commercial project with an estimated value of over Bt1.6 billion on 6-rai of land. Three existing office buildings on the site will be removed to make way for the new scheme which is something Silom has not seen for many years. The new building will also serve as MINOR’s new headquarters.
Demolition has also begun on the Kian Gwan tower-one building on Wireless Road which will be redeveloped into a new office building. The building was originally completed in 1972 and was one of the first high rise developments in Bangkok.
To date, this trend has been limited to prime CBD locations where land costs have soared and more specifically for office buildings.
In the future, the trend may expand to other single-ownership properties such as apartments, serviced apartments and hotels which are becoming old and obsolete and where the best option to move forward is to demolish and rebuild to ensure the property is in line with the current market requirements.

Aliwassa Pathnadabutr is managing director of CBRE Thailand.