Bangkok's office supply totalled 8.95 million square metres at the end of the first quarter of 2019, an increase of 1.9% from the same period last year, according to CBRE Research.
Three office buildings were completed with a combined net area of 78,000 sq m: True Digital Park, MS Siam Tower and Ladprao Hills.
The overall vacancy rate increased to 7.5% from 6.6% in the fourth quarter of 2018. Total net take-up (growth in total occupied space) was 41,000 sq m, down 36.1% year-on-year.
Future office supply continued to rise in the first quarter of 2019 with construction starting on six more projects. Around one million sq m of new space was under construction, increasing from 870,000 sq m in the previous quarter. This new space will be completed between the second quarter of this year and 2022.
About 60% of the total space under construction will be Grade A office space for rent in the central business district (CBD). These properties include including Mitrtown Office Tower, The Parq (Phase 1), Vanissa Building, the Unicorn, O-NES Tower, EmSphere, One City Centre, and the first phase of One Bangkok.
With around 1.2 million sq m of office space still in the planning stage with sites having been acquired, CBRE expects to see more construction starts. This will lead to an increase in projected future supply beyond 2021.
Although there is a lot of space under construction, most of it will be completed after 2021, meaning options will remain limited in 2019 and 2020. Mitrtown Office Tower and The Parq (Phase 1) will be the only two Grade A buildings in the core CBD due for completion in 2019 and 2020, respectively.
"Tenants who need space during this period will need to plan ahead because of limited choices," said Roongrat Veeraparkkaroon, head of advisory and transaction services (offices) at CBRE Thailand.
By 2022, the total supply in the capital is expected to reach around 10 million square metres. The overall office market is likely to change with new supply exceeding forecast demand due to the amount of new buildings being completed during this period.
UPGRADES NEEDED
Meanwhile, vacancies are expected to rise in old buildings, which may force the landlords to offer more attractive rents and improve the quality of their space in order to retain or attract new tenants.
The population density of office buildings will be higher because of the growing trend towards agile working; hence buildings will need to have the lift capacity to deal with the volume of traffic.
One feature of the more flexible or agile workspace is that employees do not have allocated desks. More people per floor will require more sophisticated air-conditioning systems to keep temperatures constant in all working areas, and there will need to be better thermal insulation.
The larger office population will also mean that other facilities including washrooms are becoming more important to tenants. They are also demanding better supporting amenities in buildings. This will be a major challenge for owners of older buildings, making it harder to retain the best quality tenants.
Looking forward, CBRE believes more tenants will move to agile workplaces which means they will require less space but pay more rent per square metre as they will need good quality buildings.
The key question is how many companies are willing to pay significantly higher rents to get top quality premises, which will depend on the rental gap between new Grade A and older Grade A and B buildings.
If the premium for the best quality buildings is significantly higher than for older buildings, it may be difficult for tenants to get approval for an increased rental budget.