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Commercial Research
Bangkok OfficeMarket Overview Q2 2020
2
BANGKOK OFFICE MARKET OVERVIEW Q2 2020
HIGHLIGHTS
During the first quarter, almost everyone was working from home. However, as firms returned to the office during the second quarter, they began to take stock of their situation and review their options. For many, the strategic review process is still ongoing. Some firms are still uncertain about the outlook for their business, and what this economy will mean for their headcount projections and their subsequent demand for office space. During these reviews, many will also have to answer the question of whether or not working from home will be embraced going forward, and if so, to what degree? This means that some elements of this quarter’s statistics may seem at times contradictory. We expected occupancies to fall as tenants started to return unused office space. But rising rents illustrates the illiquid nature of the market, and how the supply side does not react immediately to changes in demand. Looking ahead, if confidence in the economy falters, tenants will increasingly priortise cost control over quality, opting to reduce their footprint, or relocate to more competitively priced buildings. Couple this with more supply coming on stream, and tenants will find themselves with more choice, whilst landlords will face mounting downward pressure on rents.
TOTAL SUPPLY OF OFFICE SPACE IN
BANGKOK INCREASED BY 1.9% Q-O-Q TO REACH
5.33 MILLION SQ M
1
AROUND 1.2 MILLION SQ M OF
FUTURE SUPPLY IS ANTICIPATED FROM
Q3 2020 TO 2023
2
TOTAL OCCUPIED SPACE FELL BY 1.0% Q-O-Q TO
4.68 MILLION SQ M
3
MARKET OCCUPANCY RATE DECLINED TO 87.7% FROM
90.3% IN THE PREVIOUS QUARTER
4
THE AVERAGE ASKING RENT INCREASED BY
0.4% Q-O-Q TO 798 BAHT PER SQ M PER MONTH
5
““
MARCUS BURTENSHAWExecutive Director, Head of Occupier Services and Commercial Agency
3
BANGKOK OFFICE MARKET OVERVIEW Q2 2020
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
Q22011
Q22012
Q22013
Q22014
Q22015
Q22016
Q22017
Q22018
Q22019
2020 2021 2022 2023
Supply Supply (Projected)
FIGURE 1BANGKOK OFFICE SUPPLY SQ M
SOURCE : KNIGHT FRANK (THAILAND) – OCCUPIER SERVICES & COMMERCIAL AGENCY
Office Property Market Indicators
Q2 2019
5,087
4,640
91.2%
777
5,231
4,724
90.3%
794
5,331
4,675
87.7%
798
Supply
Occupied Space
Occupancy Rate
Average Asking Rent
(’000 sq m)
(’000 sq m)
(Baht per sq m per month)
Q1 2020 Q2 2020
1.9%
1.0%
2.6% pts.
0.4%
Q-o-Q
4.8%
0.7%
3.5% pts.
2.7%
Y-o-Y% Change
Economic Overview
Thailand’s GDP contracted by 12.2% Y-o-Y in Q2 2020, deepening from the 2.0% fall in the previous quarter. This represents the steepest GDP contraction since the Asian financial crisis in 1998 during which a 12.5% contraction was recorded in Q2 1998.
The COVID-19 pandemic and the ensuing domestic and international measures to prevent and control the spread of the disease were major factors that contributed to the severe level of decline. While many restrictions were lifted towards the end of the 2nd quarter, the economic impacts were still clearly pronounced. Exports contracted by 28.3%, largely attributable to manufacturing products which were affected by temporary shutdowns and reduced global demand. Private final consumption dropped by 6.6% as spending on durable goods, semi-durables and services fell by 30.2%, 15.7% and 7.0%, respectively. The tourism sector remained largely diminished, as reflected by the 91.2% decline in expenditure of non-residents in the country as foreign tourist arrivals fell to zero. Meanwhile, an 8.0% drop in fixed capital formation can mostly be attributed to a 15.0% reduction in private investment. In contrast, government consumption expenditure and public investment expanded by 1.4% and 12.5%, respectively, as remedial measures to stabilize and restore the ailing Thai economy were rolled out.
Supply
In Q2 2020, the total supply of office space in Bangkok increased by 99,420 sq m or 1.9% Q-o-Q to reach 5.33 million sq m. This was the first time supply increased by over 99,000 sq m since Q3 2011. Three new buildings were completed, adding 60,000 sq m to the CBD and 39,420 sq m to non-CBD areas. There were no withdrawals of obsolete stock. In comparison, supply grew at a rate of around 26,800 sq m per quarter over the past five years.
4
BANGKOK OFFICE MARKET OVERVIEW Q2 2020
Office expected completion in Q3 & Q4 2020
Summer Point
Siamscape
TRR Building
Silom Center
Vanissa Building
Lumpini TowerVibhavadi - Chatuchak
Ratchada One
5,780
13,238
15,578
17,000
22,185
15,906
21,000
2020
2020
2020
2020
2020
2020
2020
Non-CBD
CBD
Non-CBD
CBD
CBD
Non-CBD
Non-CBD
Total Office completion in 2021 : 352,170 sq m
Office expected completion in 2022 - 2023
M Tower ll
Ratchayothin Hills
Emsphere
The Unicorn (Phayathai)
Vanit Place Aree
Park Silom
One City Centre
The Forestias
AIA East Gateway
Chuvit Garden
One Bangkok (Phase l)
Dusit Central Park
Super Tower
15,682
16,521
20,000
22,499
33,510
56,500
59,170
100,000
136,000
20,000
89,400
90,000
94,000
2022
2022
2022
2022
2022
2022
2022
2022
2022
2023
2023
2023
2023
Non-CBD
Non-CBD
CBD
Non-CBD
Non-CBD
CBD
CBD
Non-CBD
Non-CBD
CBD
CBD
CBD
Non-CBD
Total Office completion in Q3 & Q4 2020 : 110,687 sq m
Office expected completion in 2021
Onnut Hills
111 Praditmanutham
140 Wireless
Smile Square
Kronos Sathorn
WHA Tower
Poem Tower
66 Tower
Rasa Two
O - NES Tower
CAS Centre
Oasis
8,073
10,660
14,315
22,341
22,481
25,000
25,000
29,000
45,000
46,000
51,300
53,000
2021
2021
2021
2021
2021
2021
2021
2021
2021
2021
2021
2021
Non-CBD
Non-CBD
CBD
Non-CBD
CBD
Non-CBD
CBD
Non-CBD
Non-CBD
CBD
Non-CBD
Non-CBD
Lettable Area (Sq m)Building Name Completion Zone
Total Office completion in 2022 - 2023 : 753,282 sq m
TABLE 2BANGKOK OFFICE FUTURE SUPPLY (PROJECTS)SQ M
SOURCE : KNIGHT FRANK (THAILAND) – OCCUPIER SERVICES & COMMERCIAL AGENCY
Future Supply
Seven new projects are expected to be completed within the 2nd half of this year, which will add around 110,000 sq m of office space to the market. Around 47% or 52,423 sq m of projected new supply during this period will be located in the CBD.
Although two properties with a combined office space of 47,341 sq m projected to be completed in 2021 are experiencing minor delays, other buildings are still expected to be completed on schedule. If launches in Q3 through to 2023 proceed as planned, the Bangkok office market will grow by 1,216,139 sq m or an average of 347,468 sq m annually (accounting for only additions and not withdrawals). In comparison, from Q2 2016 to Q2 2019, new supply entered the market at a rate of around 185,000 sq m annually. From around 5.3 million sq m today, the total office market supply will likely reach 6.5 million sq m by the end of 2023.
Future Supply
Year
Q3 & Q4 2020
2021
2022
2023
Sub - Market Total
Market Total
52,423
107,796
135,670
199,400
495,289
CBD
58,264
244,374
324,212
94,000
720,850
Non-CBD
Lettable Area
1,216,139
TABLE 1BANGKOK OFFICE FUTURE SUPPLYSQ M
SOURCE : KNIGHT FRANK (THAILAND) – OCCUPIER SERVICES & COMMERCIAL AGENCY
CBD Non-CBD
720,850 Sq m495,289 Sq m
FIGURE 2BANGKOK OFFICE FUTURE SUPPLY DISTRIBUTION
SOURCE : KNIGHT FRANK (THAILAND) – OCCUPIER SERVICES & COMMERCIAL AGENCY
5
BANGKOK OFFICE MARKET OVERVIEW Q2 2020
120,000
100,000
80,000
60,000
40,000
20,000
0
Q22011
Q22012
Q22013
Q22014
Q22015
Q22016
Q22017
Q22018
Q22019
Q22020
10 Yr. Average:67,126 Sq m
FIGURE 3 BANGKOK OFFICE ANNUAL TAKE UPSQ M
SOURCE : KNIGHT FRANK (THAILAND) – OCCUPIER SERVICES & COMMERCIAL AGENCY
Demand
Overall leasing activity fell as total take up declined by 11% from last quarter to 66,211 sq m. This level of take up is just slightly below the 10 year quarterly average of 67,126 sq m. Despite the relatively stable level of take up, a far greater amount of space was returned to the market as 115,750 sq m was vacated by tenants. This led to net absorption declining from 23,984 sq m to – 49,547 sq m, the lowest level recorded over the past 10 years. As a result, total occupied space dropped to 4.68 million sq m, representing a 1.0% quarterly decline. These factors indicate that although leasing activity is still ongoing, a significant portion of tenants have elected to reduce their real estate footprint as a cost saving measure. In addition, a number of companies may have shut down and exited the market entirely as the detrimental economic effects of the COVID-19 pandemic are prolonged.
Take Up Space Vacated Net Absorption
Q2 2016 Q2 2017 Q2 2018 Q2 2019 Q2 2020
0
100,000
150,000
50,000
-50,000
-100,000
-150,000
FIGURE 4BANGKOK OFFICE QUARTERLY SUPPLY – DEMAND DYNAMICS SQ M
SOURCE : KNIGHT FRANK (THAILAND) – OCCUPIER SERVICES & COMMERCIAL AGENCY
6
BANGKOK OFFICE MARKET OVERVIEW Q2 2020
Grade / Quarter Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 10 YearAverage
Overall
A
B
C
91.2%
95.5%
91.4%
86.4%
90.9%
94.0%
91.5%
86.6%
90.5%
94.2%
91.7%
84.3%
90.3%
94.6%
90.6%
85.4%
87.7%
91.2%
87.8%
83.8%
90.0%
91.4%
90.9%
86.0%
TABLE 3BANGKOK OFFICE OCCUPANCY RATE BY GRADE
SOURCE : KNIGHT FRANK (THAILAND) – OCCUPIER SERVICES & COMMERCIAL AGENCY
Supply Occupied Space Occupancy Rate
0
Q22011
Q22012
Q22013
Q22014
Q22015
Q22016
Q22017
Q22018
Q22019
Q22020
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000 100%
87.7%
91.2%92.6%92.2% 91.4%91.3%90.4%89.6%86.8%86.1%90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
4,47
3,05
23,
852,
608
4,60
0,94
83,
993,
291
4,57
6,72
74,
100,
071
4,68
8,15
54,
236,
785
4,79
4,26
24,
376,
023
4,86
6,75
24,
485,
052
5,04
0,01
74,
608,
724
5,05
9,82
04,
683,
626
5,08
7,47
04,
639,
969
5,33
0,65
94,
674,
554
FIGURE 5BANGKOK OFFICE SUPPLY, DEMAND AND OCCUPANCY RATE SQ M
SOURCE : KNIGHT FRANK (THAILAND) – OCCUPIER SERVICES & COMMERCIAL AGENCY
Due to an atypically large increase in supply and subdued demand, the market occupancy rate dropped by 2.6% points Q-o-Q and 3.5% points Y-o-Y to 87.7%. This is the 5th consecutive quarter drop in the occupancy rate, which puts the current level below the 10 year average of 89.9%.
When segmented by grade, it is apparent that higher grade properties were more affected by the market slowdown. While the occupancy rate declined across the board, it fell the most for the grade A segment, declining by 3.3% points Q-o-Q. Meanwhile, grades B and C experienced declines of 2.8% points and 1.6% points Q-o-Q, respectively. As the grade A occupancy level has fallen below its 10 year average, all segments underperformed their long term averages.
On a quarterly basis, occupancies are down across all sub-markets tracked, both in the CBD and non-CBD areas. The rate in both Asoke – Phrompong and Ploenchit – Chidlom fell by 3.5% points, the biggest decline amongst all sub-markets. In contrast, the rate declined the least in the Asoke – Petchburi area, falling by 0.7% points. Overall, the CBD and non-CBD areas experienced a relatively uniform level of decline, falling by 2.6% points and 2.7% points, respectively.
7
BANGKOK OFFICE MARKET OVERVIEW Q2 2020
1,200
1,100
1,000
900
800
700
600
500
400
300
524 545 565 587607
639680
717769
785
322 343 360 384 384 400427 440 473 474
722741
786823
892944 947
1,017
1,0781,137
546 561 587609
651677 693
746777 798
Q22011
Q22012
Q22013
Q22014
Q22015
Q22016
Q22017
Q22018
Q22019
Q22020
A B C Market
FIGURE 6BANGKOK OFFICE AVERAGE ASKING RENT BY GRADEBAHT PER SQ M PER MONTH
SOURCE : KNIGHT FRANK (THAILAND) – OCCUPIER SERVICES & COMMERCIAL AGENCY
AreaAverage
Asking RentOccupancy
Rate (%)
Wireless
Asoke - Phrompong
Ploenchit - Chidlom
Silom - Sathorn
CBD
1,144
1,081
957
896
972
0.9%
0.4%
0.1%
0.4%
0.5%
3.9%
4.4%
0.1%
3.1%
3.5%
90.2%
94.3%
92.5%
91.4%
91.1%
CBD Districts
1.4%
3.5%
3.5%
1.3%
2.6%
1.2%
3.9%
3.9%
2.1%
3.1%
(Q-o-Q)Occupancy % Change
(Y-oY)(Q-o-Q)Rent % Change
(Y-oY)
Non - CBD Districts
Asoke - Petchburi
Paholyothin - Viphavadi
Rama 9 - Ramkhamhaeng
Bangna
Non-CBD
799
697
696
569
642
0.8%
1.1%
0.2%
1.7%
0.2%
1.5%
2.4%
2.3%
2.4%
1.7%
90.7%
92.1%
85.1%
74.9%
84.7%
0.7%
2.1%
1.6%
0.9%
2.7%
3.2%
2.9%
6.3%
0.9%
3.8%
TABLE 5BANGKOK OFFICE SUB-MARKET INDICATORS
SOURCE : KNIGHT FRANK (THAILAND) – OCCUPIER SERVICES & COMMERCIAL AGENCY
Grade / Quarter Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020
Overall
A
B
C
777
1,078
769
473
786
1,090
778
476
790
1,116
775
466
794
1,131
784
469
798
1,137
785
474
TABLE 4BANGKOK OFFICE ASKING RENT BY GRADE BAHT PER SQ M PER MONTH
SOURCE : KNIGHT FRANK (THAILAND) – OCCUPIER SERVICES & COMMERCIAL AGENCY
Rental Rates
Rents continued to face downward pressure underpinned by softening market conditions. The average asking rent increased by 0.4% Q-o-Q and 2.7% Y-o-Y to 798 baht per sq m per month. This level of growth is below the 4.2% average annual increase recorded over the past five years, although the values are starting to converge as limited rental growth is protracted.
Grade C properties experienced the highest quarterly rental increase, rising by 0.9% to reach 474 baht per sq m. Meanwhile, grade A rents increased by 0.5% to 1,137 baht. On the other hand, grade B rents stagnated after having undergone a negligible growth rate of 0.1% to 785 baht. However, rental growth across the various grades still remain consistent with recent trends whereby higher grade properties undergo more rental growth on an annual basis. Grade A rents are still up 5.4% Y-o-Y in contrast to grade C rents, which increased by 0.2% over the same period. Despite some quarterly fluctuations, in the face of office market conditions that continue to weaken, landlords of grade C properties will find it difficult to justify rental increases, especially since their competitive advantage lies in below-market rates.
Rents for properties in the CBD grew by more than those located outside of it. In the CBD, the average asking rent increased by 0.5% Q-o-Q and 3.5% Y-o-Y to 972 baht. For non-CBD areas, it rose by 0.2% Q-o-Q and 1.7% Y-o-Y to 642 baht.
In the CBD, all areas sampled experienced negative quarterly rental growth with the exception of Asoke – Phrompong, where the average asking rent increased by 0.4%. On an annual basis, rents in all areas are still up except for those in Ploenchit – Chidlom where the asking rent fell by 0.1%. Outside the CBD, the average asking rent increased the most for Bangna, having risen by 1.7% Q-o-Q. This is also the highest growth rate recorded across all districts sampled. However, on an annual basis, the average asking rent in Bangna is down 2.4%, which is more than other sub-markets.
8
BANGKOK OFFICE MARKET OVERVIEW Q2 2020
Review & Outlook
Matching the projections we made at the end of Q1 2020, the Bangkok office property market continued to weaken with the negative impacts of COVID-19 becoming much more pronounced in the Q2 data. A greater number of firms are no longer waiting on the sidelines and have executed revised real estate strategies based on the current and projected impact of the pandemic on their business operations. While the past decade has been marked by a ‘flight to quality’, whereby tenants expanded their real estate footprint and invested in higher quality workspaces to attract talent and enhance productivity, there have been some signs of trend reversal in this quarter. A greater number of companies have decreased their real estate outlays either by surrendering some space back to the landlord, seeking sub-tenants or by relocating to a different property. Some have implemented working from home or remote working policies on a permanent basis. This is reflected by the large decline in net absorption despite a relatively stable level of take up. To reiterate, firms that opt to relocate generate demand for competitively priced buildings that can persist if these companies fail to recover to pre-crisis levels. Given that relocation itself is a costly capital expenditure, space reduction is likely to be the preferred option for most occupiers under financial constraints, unless they can find fitted out space that supports their operations at an attractive rate.
Prior to COVID-19, we already began to see signs of a weakening market given the mismatch in supply and demand levels. However, we believed that the flight to quality would continue to drive market growth as productivity and high quality workspace options increased. However, if the growing consensus that it will take 2 to 3 years for the Thai economy to recover to pre-crisis levels hold, the cost cutting approach to real estate that started to manifest may become a more prominent driver of leasing activity in the long term instead. Arguably, businesses in some sectors such as technology, e-commerce and healthcare have flourished in the face of COVID-19 and may increase their workspace requirements as their operations grow. However, businesses in such sectors are not likely to lease enough new space to offset those returned by businesses in severely impacted industries.
If supply continues to grow at its projected pace through to 2023 with little to no stock withdrawal and demand levels hold constant, then the market occupancy rate will continue to drop further. So far, there have not been any major delays or cancellations in future supply, but the minor delays to two projects due in 2021 suggest that there could be further disruptions to the pipeline if business conditions do not improve. Negative pressure on rental growth persisted in Q2. If vacancies continue to climb as companies seek cheaper buildings and
Rental Decline- Slowing
Rental Decline- Accelerating
Rental Growth- Slowing
Rental Growth- Accelerating
Bangkok
FIGURE 7BANGKOK OFFICE RENTAL CYCLE
SOURCE : KNIGHT FRANK (THAILAND) – OCCUPIER SERVICES & COMMERCIAL AGENCY
9
BANGKOK OFFICE MARKET OVERVIEW Q2 2020
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We like questions, if you’ve got one about our research, or wouldlike some property advice, we would love to hear from you.
MARCUS BURTENSHAWExecutive Director, Head of Occupier Services and Commercial Agency
+66 (0)2643 8223 Ext 104
NOTE: ALL FIGURES EXCLUDE MULTI-OWNER OCCUPIED PREMISES AND OFFICE BUILDINGS SMALLER THAN 5,000 SQ M.
adopt permanent remote working policies, then the downward pressure on rents will likely increase even further. In addition, as more high quality workspaces are added, the market will shift to become balanced or even tenant – favoured. Landlords will have to compete on both rent and non-monetary incentives to secure tenants, with heavier emphasis placed on incentives that prioritize health, safety and well-being.
Glossary
Central Business District (CBD)The CBD is the region in Bangkok that contains the greatest concentration of Grade A office buildings, 5-star hotels and luxury shopping malls. Areas within the CBD are easily accessible via mass transit systems.
Grade A BuildingsBy virtue of their desirability, these prime properties command the highest rents in their market (top 20%). You will find them located in the Central Business District, within 500m of a mass transit station, and have a floor plate of at least 1,000 sq m.
Grade B BuildingsThe largest sector of the office market, these are the buildings that are traditionally in the greatest demand; they might not be the most expensive properties in the market but represent good value for money.
Grade C BuildingsTypically older properties, these buildings provide office space for rent at the most competitive rents in the market (bottom 40%).
Take UpMeasures the total amount of previously available space and new supply now leased by tenants during a given period of time. It does not account for the amount of space vacated by tenants. It is an indicator for the amount of new leasing activity that has occurred.
Space VacatedMeasures the total amount of space vacated and not re-let during a given period of time.
Net AbsorptionMeasures the change in occupied space during a given period of time. In other words, it is the total amount of space leased minus the total amount of space vacated by tenants. Net absorption indicates the change in demand relative to the current supply available in the market.
PHANOM KANJANATHIEMTHAOManaging Director
+66 (0)2643 8223 Ext 124
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