New horizons: Rising office rental prices see Bangkok’s CBD expand to new areas

High land prices in the central business district (CBD) area of Bangkok, combined with sluggish rental rates until recently, have discouraged developers from delving back deeply into the office market. However, that could all be about to change as the vacancy rate in CBD Grade-A space was reported to have fallen below 10% for the first time in 20 years, while some rentals have crept up to around BT950 ($31.07) per square metre (sqm).

According to real estate consultancy firm CBRE’s Bangkok office, the total supply of office space edged up by 0.2% in the last quarter of 2013 to reach 8.11m sqm, while the vacancy rate dropped year-on-year (y-o-y) by 2.6% to 9.6%. A quarterly report added that the CBD Grade-A vacancy rate was 8.4%, while further evidence of the tightening of the market was provided by the take-up rate for 2013. That figure of 220,000 sqm, up by 37.7% on the 160,000 sqm for 2012, was the highest net take-up since 2005. The 8.4% vacancy rate for CBD Grade-A offices was largely achieved by new tenants for Sathorn Square, bringing the total commitment levels to approximately 77% of the development. Simon Landy, executive chairman of real estate consultants Colliers International Bangkok, told OBG, “Over the past six months office rents have moved up substantially, so we are studying at what level of rents it becomes viable to build offices again. Space in a building put up a couple of years ago is now commanding BT950 ($31.07) per sqm per month.”

James Pitchon, executive director of CBRE in Thailand, confirmed the trend. “Rents rose 10% across every grade in almost every location in 2012,” he told OBG. “There is limited new supply, with around 450,000 sqm due to come onto the market within the next three years, and the short-term outlook is that take-up could exceed supply.”


All four types of office rents rose – Grade A and Grade B in the CBD, as well as both grades in non-CBD areas. By the end of 2013, the average rate for Grade-A space in the CBD was BT820 ($26.81) per sqm per month, a rise of 7% over 2012.

CBRE said that going forward it expected rents would continue to grow, albeit more slowly because office buildings that command a premium rent are almost full. Grade-B offices in CBD areas went up at an even faster rate y-o-y – by 9.1% – to average BT578 ($18.90) per sqm per month.

Outside the recognised business district, Grade-A office rents in 2013 increased by 5.4% over the 2012 figures to an average of BT608 ($19.88) per sqm per month, while those for Grade-B offices went up by 7% to BT536 ($17.53).

CBRE bases its average on the rent for offices of 200-300 sqm, including maintenance fees, air-conditioning charges and local property tax, as well as taking account of rent-free periods.

The attraction of being located close to mass transit stations is every bit as applicable to offices as it is to the condominium market. CBRE reported that a number of Grade-B CBD offices near stations were fetching higher rents than those of Grade-A offices inside the business district, but further away from fast access to public transport. According to Colliers International, around 80% of all Bangkok’s offices are located along mass transit lines.

New Areas

A tight market in the CBD areas is not only pushing up rents but also encouraging an expansion of the areas seen as business districts. Colliers reported that Ratchadapisek Road, starting from the Rama 9 Junction, is “becoming a new Bangkok business zone and most new office buildings expected to be completed in 2014-15 are located in this area”.

Looking ahead to the future, Landy suggested that one possible solution to high-priced land skewing the economics of building offices would be to lease land rather than buy it outright. “There is a big opportunity for offices to be built on leasehold land,” he told OBG. “You can amortise the cost over 30 years and the level of rents would not be affected.”

Dan Tantisunthom, head of research for international real estate consultancy group Jones Lang LaSalle in Bangkok, saw another possible development – splitting office staff to put back office personnel in areas outside the CBD and therefore in places where the rents are cheaper. “There may well come a situation where front office and back office staff work in different places, if businesses decide there is no point in paying rising Grade-A rents for back office staff,” he told OBG.

“In the suburbs land will be cheaper and it may be more convenient for some staff to get to work,” Tantisunthom added. The last businesses to consider any move of this kind, he said, would probably be banking and other finance-related companies, as well as high-profile legal firms, for all of whom image is a concern in addition to “who the neighbours are”.


Another factor that has led to the dispersal of offices is the general lack of zoning restrictions in Bangkok, which, along with cost savings on land, has led, as Colliers says, “to significant office supply in a wide range of locations in the city”.

The original CBD on Silom Road and Surawongse Road reached a stage of development that would not allow for further big developments, which then moved to the eastern part of Sathorn Road.

Sukhumvit Road in the direction of Asoke is also considered a part of the CBD, although it is a major hotel, residential and entertainment area as well. In effect, the CBD has taken a meander round the city and is now defined not so much by specific geography as by the de facto presence of a cluster of, or at least several, Grade-A office buildings.

According to Colliers, large projects are planned for several locations around Bangkok, such as the Ladprao intersection, the area close to the Mo Chit Station and Bang Sue BTS stations, the former Suan Lum Night Bazaar opposite Lumphini Park, Makkasan Complex and Bangkok port terminal. These could be purpose-built developments copying the mix that the Sukhumvit area grew into: comprising residential, retail, hotel and office space.


The uneven intensity of putting up office blocks is remarkable. In the dozen years between 1987 and 1999 an average of more than 450,000 sqm of office space was added every year. Yet since the turn of the millennium the annual average addition has been less than a fifth of that amount. Colliers calculates that more than more than 80% of the capital’s offices were built before 2003.

In turn, this presents two likely scenarios. Given the age of the office building stock, there is clear potential for widespread renovation, if the high Grade-A rents are to be maintained or even increase. An alternative, as Tantisunthom pointed out, is that some current Grade-A space naturally progresses with time into the Grade-B category. Although the average new supply up to 2013 has been around 82,500 sqm, the total new office space expected to come on-line in 2014 is, at 156,000 sqm, almost double that, and is the most for the past four years.

Looking Ahead

Predictions in Bangkok are invariably underpinned by the maintenance or restoration of political stability, as the case may be at any given time. Ongoing political gridlock has dampened growth prospects, with the World Bank lowering its 2014 forecast from 4.5% to 3% (see Economy chapter). Unrest aside, there are several factors that give rise to optimism in the office market.

The basic environment is one of absorption of whatever small surplus space there was and the maintenance or even strengthening of rental rates. To attract more foreign investors and businesses, the government reduced the corporate tax from 30% to 23% in 2012, slashing it by a further three percentage points in 2013.

The imminent onset of the ASEAN Economic Community (AEC), slated for December 31, 2015, is also concentrating the minds of those who harbour wider ambitions of seeing Thailand take advantage of its central geographic location in the 10-nation bloc to host regional offices. The corporate tax rates in Singapore – and Hong Kong for that matter – are still lower than Thailand’s 20%, but other expenses such as rent for offices and homes are less, as is the general cost of living. There is also some evidence of increased demand from both Thai and multinational companies for either new office space or expansion of existing premises.

CBRE estimates that approximately 450,000 sqm of new office space will be completed between 2014 and 2016. Based on projects already announced by the fourth quarter of 2013, it said the 45-floor Bhiraj Tower, AIA Sathorn Tower on South Sathorn Road, and the For Your Inspiration Centre, a $163.5m project being developed on Ratchadaphisek Road, are the only projects that will be developed in the CBD area, with the first two being of Grade-A standard.

Although CBRE said over half of the new space, some 57%, would be Grade A, less than a third of all new space would be in the traditional CBD areas.


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