Bangkok prime office rents inch up 0.3% in Q3

New completions drove the rise in gross rents.

According to a JLL report, prime gross rents in Bangkok edged up 0.3% q-o-q to THB 963 per sqm per month in 3Q23. New premium completions increased gross rents after pre-leasing rates exceeded 50%, while the overall rents remained unchanged. 

JLL added, “In contrast, rent-free periods still expanded along with higher operating costs, keeping the net effective rents stable with a marginal increase of 0.2% q-o-q to THB 738 per sqm per month.”

Here’s more from JLL:

Capital values remained at a high level of THB 155,300 per sqm in 3Q23, while market yields stabilised at 5.7%. These trends can be attributed to the ongoing increase in land value and the gradual policy rate increase by the Bank of Thailand to 2.50% in late September.

Recent completions drive Prime leasing activities

In 3Q23, the Prime office market in Bangkok’s CBA experienced a net absorption of 27,700 sqm, mainly due to demand for recent completions. The overall market saw a continued flight-to-quality pattern, with over half of the positive absorption coming from upgrading older assets to higher-quality ones.

During the quarter, gross leasing volume reached 16,000 sqm with more than ten relocations. Pre-commitment rates for upcoming projects ranged from 5% to 30%, with the majority experiencing less than 10%.

Vacancy slightly compresses as major projects are delayed

No new Prime office buildings were completed during the quarter. Total Prime stock remained at 1,476,000 sqm in the CBA. A large portion of pipeline supply has been delayed until 2024, which lowered the forecast vacancy levels in 2023. However, the market still experienced limited demand, resulting in a slight decrease of -188 bps q-o-q in the prime vacancy rate, reaching 19.6% in 3Q23. 

Moreover, aged assets witnessed a shift in tenant preferences as top companies opted for newer spaces incorporating ESG goals. This trend led to a gradual rise in renovation and office asset enhancement to sustain competitiveness and maintain occupancy levels.

Outlook: Rising vacancy rate aligns with supply influx

By end-2023, the Prime vacancy rate is anticipated to leap beyond 20%. Upcoming projects in 4Q23 should contribute over 180,000 sqm to the market with moderate pre-commitment levels. A substantial supply influx of 336,800 sqm is projected for 2024. This surge in supply is likely to intensify competition and lead to an increase in the vacancy rate to 28.3% by the end of 2024.

The new Prime Minister’s appointment and policy changes could impact business sentiment in the near future. Investors are monitoring the situation closely and eagerly awaiting government policies. Increasing acceptance of leasehold tenure may lead to more sponsor divestments into REITs as yields decline. However, the impact on Prime office leasing is expected to be minimal.

Note: Bangkok Office refers to Bangkok's CBA Grade A office market.