Bangkok office market lags as demand whittled away
The Bangkok office market is slowing because of shrinking demand and future supply overwhelming the market, with flat growth in occupancy and rents expected this year.
Teerawit Limthongsakul, managing director of property consultant Nexus Real Estate Advisory, said many office tenants decided to scale down or not to expand as they wanted to cut costs.
"The pandemic has been prolonged," he said.
"Apart from cost savings, demand tends to drop in the long term as working from home becomes a trend. The country is an ageing society with a shrinking working population."
The Bangkok office market is also challenged by large supply coming in the next five years -- a total of around 1.8 million square metres, mainly from big projects like One Bangkok near Lumpini Park, WHA Building in Bang Na area and One City Center on Ploenchit Road.
"The large amount of supply will raise tenants' bargaining power," said Mr Teerawit. "With the slow recovery of the economy this year, rents may be flat and occupancy may be flat or drop."
In the fourth quarter of last year, the office occupancy rate may have been high, but it dropped to 91% from 94% in 2019, he said.
Total office space at year-end 2020 was 6.2 million sq m with around 130,000 sq m newly added during the year.
Average rents last year rose slightly by 1%, but the increase was lower than the average in prior years, when there was 4-5% escalation per year.
Wutthiphon Taworntawat, managing director of commercial developer UHG, which owns and operates office space for rent at three towers, said some tenants reduced office usage by 25%.
"Their performance was not good and they had to lay off employees," he said.
Mr Wutthiphon said working from home would not have a strong impact on office demand in the future as many Thai companies found productivity dropped.
Additionally, the average space requirement per head, which dropped by 20% during before the pandemic, will likely return to normal because of hygiene requirements and a need for better work environments.
"Overall office demand may drop by 10-15% because of the economic slowdown and work from home trends," he said.
According to Cushman & Wakefield, a US-based commercial real estate services firm and a partner of Nexus, working from home was not popular in Asia. The growth rate of work from home is predicted to be slow, from 2.6% to 5.2% in the next 10 years.
"Growth will be gradual as many companies in Thailand need more time to adjust," said Mr Teerawit. "Working from home is inconvenient for some Thai sectors that would prefer semi-permanent working from home."