Thailand sees surge in office demand

Text size +-

Demand for rental space in the office segment of Thailand’s property market is tipped to rise at double-digit rates this year, outpacing growth forecasts for both the real estate sector and the broader economy, and adding pressure to already limited supply.

The office market in the capital, Bangkok, could see 10% growth in 2015, according to a July report by property consultancy CBRE Thailand, more than tripling the most recent GDP growth projections.

Up & away

In late July authorities revised their forecast for GDP growth for the year to 3%, down from earlier estimates of 3.7%. Demand for office space in Thailand, and Bangkok in particular, continues to rise sharply despite the downturn – a trend analysts expect will continue.

The impending launch of the ASEAN Economic Community (AEC), the single market grouping comprising the 10 member states of the regional bloc, is helping to drive the Thai office segment. With the AEC set to debut at the end of this year, a growing number of regional companies are looking to set up shop in Thailand to take advantage of opportunities afforded by the single market at relatively cheaper rental rates. Tax and non-tax incentives initiated by the military government to encourage multinational firms to establish regional headquarters in Thailand have also helped spur demand.

"If the political situation in the country is positive, the office-for-rent businesses will enjoy strong growth," Nithipat Thongpun, CBRE Thailand’s executive director and head of office services, told local media in early July. “As a centre of the ASEAN region, geographically low office rents will attract international companies to Thailand next year.”

Despite a record 92.6% occupancy rate and growing demand, Bangkok’s prime monthly rental prices were just $24 per sq metre in the second quarter of 2015, according to a report by real estate consultancy Knight Frank, whereas the rates of other of other major cities in the region were much higher. Hong Kong averaged $173.30 per month, while average rents in Singapore and Jakarta stood at $84.50 and $39.60, respectively, suggesting interest for office space in Thailand could continue as the economy rebounds.

Limited new stock available

Bangkok has had difficulty keeping pace with rising demand, with 156,000 sq metres set to come on-line in 2015, a 20% decline from last year, according to CBRE. Meanwhile, demand for new floor space is expected to reach 200,000 sq metres this year, up 10% year-on-year (y-o-y). Not only is office space in short supply, but much of what is available is dated, with 86% of offices in the capital built at least a decade ago.

This trend has been reinforced by real estate developers, who have traditionally given preference to the more profitable residential segment. According to the National Statistical Office (NSO), office and commercial space accounted for just 15.9% of the permitted floor area under construction in the first quarter of this year, compared to 64.3% for residential development. Construction activity as a whole was also in decline in the first six months of the year, with the amount of floor space permitted for construction contracting by 8.3% quarter-on-quarter, the NSO reported, suggesting the supply of new properties, including office developments, will continue to be limited.

Demand outstrips supply

The slow pace of new office accommodation has driven up occupancy rates over the past year. Office rentals rose by 2.1% between the first and second quarters of 2014, according to Knight Frank, with occupancy rates increasing in nearly every segment of the office market.

CBRE expects rates will rise even further by 2017, with occupancy levels increasing to around 95%, as demand for rental offices increased by 5-10% per annum in the medium term.

While rental costs remain low for the region, prices are being driven up by demand. Average office rent levels in Bangkok’s central business district were up 7.6% y-o-y in the second quarter at BT775 ($21.61) per sq metre, according to a study by real estate advisory DTZ, with further increases projected for the remainder of the year.

Given currents trends, any easing of supply-side shortages seems unlikely in the next year, and without a shift towards greater office development, demand is expected to continue to outstrip supply, which could result in above-inflation increases in rental costs.

Oxford Business Group is now on Instagram. Click here to follow

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart

Read Next:

In Thailand

How does Asia Pacific rank on net-zero emissions targets?

A recent report found that relatively few companies in the Asia-Pacific region have adopted net-zero carbon emission strategies to date. Nevertheless, there are grounds for cautious optimism as...

In Real Estate

Slower growth predicted for South African property market

After two years of strong growth, the residential market in South Africa is set to lead global housing price increases by some estimates, although the rise in property values is expected to be...


Can grid expansion keep pace with the coming surge in solar power...

As the capacity to generate wind and solar power continues to expand around the world, hopes of accelerating the phase-out of coal as the leading source of electricity may depend on the expansion...