Market View – Bangkok Office Q2 – 2010

As of Q2 2010, the total office supply in Bangkok was 7,978,543 m2, up 1.5% Y-o-Y. No new supply was completed in this quarter. Overall take-up in the Bangkok office market was 6,859,726 m2, up 0.4% Q-o-Q and 1.4% Y-o-Y. The total occupancy rate also improved slightly from 85.6% to 86% in this quarter. The vacancy rate was 14.0%, a fall from the 14.4% recorded in Q1 2010. In Q2 2010, overall rents fell for the sixth consecutive quarter since the beginning of 2009. Grade A offices in the CBD area faced a 0.4% Q-o-Q and a 2.9% Y-o-Y drop in rents, down to THB 680/m2 in this quarter from THB 683/m2 in Q1 2010.

In terms of net take-up, Grade A non-CBD offices posted the highest level of net new take-up with 25,947 m2, mainly due to tenants moving into the Energy Complex. The growth was also due to both expansion when the tenants moved and some relocation from grade B buildings, increasing the take-up of space at non-CBD Grade A buildings. Total net take-up stood at 26,924 m2, which was up 54% Q-o-Q and 99.1% Y-o-Y.

Outlook

Apart from the ongoing movement of tenants into the Energy Complex and the relocation of Citibank from a Grade B CBD building to Interchange 21, a Grade A CBD office (resulting in the growth of 26,924 m2 in the total amount of occupied office space in the quarter), demand for office space remained weak during Q2 2010. We expect that provided there is a continued recovery in the global economy and some stability in Thai politics, the strong economic growth in Thailand will result in increased demand for office space but this could emerge next year rather than the second half of 2010.

Two office buildings are scheduled to be completed in 2010: Sathorn Square (73,584 m2); and Sivatel (5,880 m2). Supply will continue to be limited in the coming years, with only two Grade A CBD office buildings: Sathorn Square and Park Ventures, expected to be completed. Due to the lack of any other new supply, these projects are expected to be able to attract tenants when demand recovers. In the current circumstances, however, office rentals are expected to stay flat over the next six months or they may fall further as landlords compete to retain tenants and fill vacant space.

Recommendations and Advice

Rents have fallen for six consecutive quarters but with an improving domestic economy and very limited new supply. This trend will change and rents will rise. There are only two new grade A buildings scheduled for completion. Tenants needing large areas will have very few choices.

We recommend that tenants considering up grading or expanding, need to start looking now to take advantage of the current low rents which are unlikely to fall further and to ensure they can get the space that they need.