Corporate strategies needed for tightening prime office market
With space in the city's business areas already scarce and becoming more so, tenants should move now to negotiate favourable lease extensions, make more efficient use of space and consider relocating further out
The happy days for occupants of prime office buildings in Bangkok's main business areas are coming to an end. With limited new supply and growing demand, this market segment is now in full recovery.
And even as most Grade A office buildings in these areas are filling up, no new supply is planned for completion between now and 2014, and none will be completed until at least 2015. Gross rents for prime offices in the area rose by 6.8% in 2012 and are likely to rise by another 15-20% in 2013.
While this is good news for building owners, corporate occupants are facing an increasingly difficult position as they have less power in negotiations with landlords. Companies with expansion plans may also be challenged to secure additional space in the same building they occupy as most of the better office buildings in central areas have only limited space available.
However, following the strategic planning tips below should allow occupants to find solutions to minimise the negative impact of the tightening office market conditions.
In most cases, tenants will have secured lease renewal rights following an initial three-year term. As part of this option, a rental cap is typically built in, restricting rental increases to as little as 10% to 15% over a period of at least six years.
Those tenants lacking protection against rental increases, or whose leases along with the rent protection cap clause expire upon the next renewal, should begin lease negotiations immediately, even if the lease does not expire in the next two years.
Starting the negotiating process with the landlord is generally most favourable to the tenant. It allows the tenant to have reserve options including relocation, should the existing landlord fail to fulfil their requirements. Landlords tend to be more flexible when they realise that tenants have other options, particularly when the tenant is a high-profile corporation occupying a large space.
CONSIDER SECONDARY LOCATIONS
Some companies may consider relocating to secondary areas that still offer good access to central areas. For example, there are six new office development projects scheduled for completion in areas less centrally located, but still easily accessible, by the end of 2014.
With easy access to the city centre through the BTS and MRT rail systems, the Asok and Ratchadaphisek areas in particular have evolved into key alternative office locations, offering several prime office buildings that presently accommodate leading domestic and international corporations.
These developments offer relatively lower-cost options with high-quality specifications and fair availability of space. While most Grade A office space in the city centre is fetching rentals ranging between 800 and 950 baht per square metre per month, space of the same quality in secondary office locations is offered between 550 and 750 baht per sq m.
However, several factors must be taken into account when considering relocation. Importantly, fit-out costs should be properly analysed. It is also important to understand staff preferences _ a poor location may result in high staff turnover in Bangkok, where the time it takes to commute to and from work is a major issue.
IMPROVE SPACE EFFICIENCY
Given the rising rents for prime centrally located office units in Bangkok, many companies will become increasingly cautious when securing additional space to accommodate business growth. Others may see rising rents as a less significant issue, but may still find securing additional space within existing premises a challenge, particularly on the same or contiguous floors.
Occupants will have to look for ways to maximise efficiency of their existing space if relocation is not an option. To achieve the highest efficiency, a good property strategy is essential. It starts with a thorough understanding of the firm's present and future workplace requirements.
There are many ways to create a more efficient working environment, such as reducing space per work station, reducing private offices, eliminating underused meeting rooms, centralising meeting rooms and areas, utilising outside storage, introducing "phone booth rooms", and having mobile workplaces (hot desks). A company with 100 employees typically requires 1,400 sq m of office space, but with a good strategy this can be reduced by 20% to 30% and still accommodate the same number of staff.
Limited supply is posing challenges to companies desiring prime office space in central Bangkok areas. This trend is likely to become more apparent as new office development projects become harder to get off the ground due to price appreciation and scarcity of land. As a result, it is imperative that tenants act wisely, and quickly.
Yupa Sathienpabayut is director of office leasing at Jones Lang LaSalle. For advice on office leasing, readers can email her at email@example.com, or visit www.joneslanglasalle.co.th.
About the author
Writer: Yupa Sathienpabayut