Bangkok records lowest quarterly office leasing demand since 2008

Net absorption dropped to below -18,000sqm in Q4 2021.

A recent JLL report says prime net absorption in Bangkok’s office property market totalled 19,000 sqm in 4Q21, largely from the demand in the new owner-occupied project UOB’s headquarter. 

Apart from that, net absorption in buildings for lease dropped to below -18,000 sqm reaching the lowest quarterly figure since 2008; more than half of the activities in the quarter were businesses downsizing, especially large-size MNCs.

Here’s more from JLL:

Known leasing volumes in 4Q21 totalled approximately 17,000 sqm with the majority being renewals. For new leases, we recorded only 2,300 sqm of take-up which were two IT-related companies.

New high-quality building completes in the quarter

CBA prime stock rose to 1.39 million sqm in 4Q21. O-NES Tower opened and added high-quality office space to Bangkok’s market, aiming for both LEED and WELL certifications. As the building secured healthy pre-commitment rate, this should reflect in the demand over the next quarter. UOB also opened its redevelopment on Sukhumvit Road.

CBA prime vacancy rate in the quarter increased further to 18.9% as overall demand remained in a downward trend and pre-committed tenants are still on their way to move in.

New completion achieves the highest rents in the market

Prime gross rents recovered slightly on q-o-q term to THB 933 per sqm per month. Landlords no longer decreased the face rents as they bottomed out and would not be feasible to operate. While most buildings maintained stable rents, the newly built O-NES Tower contributed the highest achieved rents in the current market. Net effective rents likewise recovered to THB 737 per sqm per month.

Capital values increased slightly by 2.9% q-o-q to approximately THB 157,900 per sqm. Market yield, however, remained stable at 5.6% as the market entered recovery state. We expect to see a decrease in the near term due to the rising capital values against declining rents.

Outlook: Incoming supply to further compress rents and market yield

There are four office buildings scheduled to open in 2022, with a total of approximately 149,000 sqm. Average pre-commitment would reach 50% upon opening. Older buildings are expected to suffer from additional tenant’s downsizing activity. With the weak demand in the current market, by end-2022 the vacancy rate should then rise above 20%.

With discount offered in older buildings and premiums in new buildings, we expect minimal changes in gross rents by end-2022. Net effective rents should compress after larger rent-free periods in new projects. Market yields should compress to 5.5% regarding stable rents and increases in development costs. The market should remain neutral.