Office market trends point to a bright outlook for bangkok

Despite the ongoing debt crisis in the eurozone, demand for business premises in Thailand and Southeast Asia remains buoyant

The economic outlook and business sentiment are two undeniable factors that dictate the trends in the global office market. As economic growth in Asia-Pacific began to gather pace in the first quarter of the year, the region's office market outlook is turning more positive following a period of cooling, particularly in leasing activity in the banking and finance sectors.

In recent years, the average gross domestic product growth across Asia-Pacific has been 4.5% a year. This has been bolstered by figures from China, which has spent heavily on infrastructure and seen a run-up in its housing market, though growth in the world's second-largest economy has been slowing. In contrast, there are signs that Japan is emerging from two decades of deflation, with indications of recovery in industrial output, exports and retail sales, all of which improves the outlook for its large office sector.

In Southeast Asia, economic growth remains strong with steadily rising domestic demand, a fast-rising middle class and business confidence high, all of which are supporting the office market.

Each market is at a different stage of the rental cycle, with Bangkok being one of the few Asian markets currently in the growth stage, while mature markets such as Hong Kong, Singapore and key cities in China are in the rental decline stage.

In Hong Kong's central area, the most expensive office area in the region, average office rents are about 5,550 baht per square metre per month, or seven times the average for prime space in Bangkok. The good news for tenants is that the figure in Hong Kong is actually down 6% from the previous year.

According to the latest CBRE Asia-Pacific Office Market View, on average, rental rates across Asia-Pacific recorded marginal quarter-on-quarter growth, an improvement from the decline seen towards the end of 2012. Rents for grade-A buildings have been relatively flat, with the exception of Bangkok, where they have increased 2.7% quarter-on-quarter.

The expansion was the seventh successive quarterly increase and pushed rents past their previous peak in 1992.

Despite the continuous growth in rents, Bangkok remains the cheapest in the region after Manila at about 10,700 baht per square metre.

Demand for office space across the region was stable in the first quarter of 2013 with a net absorption of 7 million square metres, though occupiers remained cautious, which affected leasing activity across most markets. Hong Kong was the only Asian market to record a negative absorption as a significant amount of secondary space was released to the market.

Steady leasing activity is expected to continue throughout the second half of this year, except in Beijing and Singapore where short-term activity will focus on consolidation and relocation for cost savings.

Shanghai will also continue to see weak demand, particularly from multinationals as the net absorption in the first quarter was just 40% of the historical average. Many occupiers in Shanghai are opting to stay in their current location and time their lease expiry to coincide with the anticipated supply peak in 2014-15.

In Bangkok, demand remains healthy, with the net take up in the first quarter of this year reaching 35,600 square metres, which was about the same as for the equivalent period of 2012. The report also shows that the overall region-wide vacancy rate fell to 9.8%, with 13 markets reporting a decline and four reporting an increase.

Hong Kong was one of the four with an increase in vacancies, with 30% of its available space located in the central area. Singapore, in contrast, reported its lowest vacancy rate since the third quarter of 2008. Occupier demand was diverse but companies in the financial sector remained quiet. Leasing activity was dominated by small- and medium-sized deals involving insurance, commodities, business services and legal firms.

Bangkok's outlook remains bright, with a vacancy rate hitting a historical low at 11%. Demand drivers are from multinational companies' expansion, particularly in the IT and consumer product sectors. Grade-A centrally located rents will continue with its upward trend, but cost-sensitive tenants might begin to switch to lower-grade buildings or same-grade buildings in non-centrally located areas as cheaper alternatives.

While the overall mood remains cautious in most markets, business sentiment is expected to gradually improve in the second half of 2013, when we expect to see a steady stream of leasing activity.

Concerns over global economic conditions will continue to weigh on sentiment, with the debt crisis in the eurozone posing the biggest downside risk. In contrast, Southeast Asia, and including Thailand, is set to outperform the market, driven by strong domestic consumption and inflows of foreign investment.

Nithipat Tongpun is executive director and head of office, retail and industrial services at CBRE Thailand. He can be reached at, Twitter: @CBREThailand, or

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Writer: Nithipat Tongpun