Office landlords face flood of new supply in ailing market
As the office market faces its worst net take-up rate, Bangkok landlords should modernise their properties and offer more flexible contracts to attract tenants before a huge amount of new supply floods in, according to property consultancy CBRE Thailand.
Roongrat Veeraparkkaroon, CBRE managing director, said the office market had been heavily affected by the pandemic. It saw a negative annual net take-up last year for the first time since the 1997 financial crisis.
"There were more reductions of occupied office spaces than new spaces leased," she said. "Last year we saw more than 80,000 square metres of negative net take-up. Even in the subprime crisis of 2008, net take-up reduced but it was still positive."
Even though the global economy and the control of Covid-19 is projected to improve, large companies who are tenants have already adjusted to the situation by considering cost-saving measures and relocating to flexible and hybrid office environments.
"We see signs of positive net take-up this year, but new leases and lease renewals should have flexibility as most landlords are willing to prepare for future risks, including possible new waves," said Ms Roongrat.
The flexible strategy will include renewal terms, rent-free periods, fitting-out packages and other facility benefits.
Meanwhile, landlords should also be proactive in terms of marketing and office trends.
"New landlords should reconsider price projections to be more realistic," Ms Roongrat added.
For the next few years, a lot of new office supply is in the pipeline.
Four small-scale projects comprising a total of around 10,000 sq m in size are considering whether to continue construction.
Bigger projects might be delayed by the pandemic but construction has continued, Ms Roongrat added.
With supply rising and demand struggling, the situation has led to pressure on rental rates from this year.
However, the market will have to look at it on a project-by-project basis as various conditions, such as the maintenance of the building, will affect rents. This will also depend on size and location.
"Developers of office projects in locations with growing demand still have a positive outlook for the market, particularly from businesses like e-commerce, tech and online marketing companies," Ms Roongrat said.
Rathawat Kuvijitrsuwan, head of research and consulting at CBRE, said there would be three trends to watch in the office market.
The first is a hybrid working model, or people working both from the office and home.
"Companies should have a clearer policy and guidelines for working to cope with this situation, ensuring productivity, saving costs and getting an optimal engagement," Mr Rathawat said.
They should determine how many days employees are required to work from home and from the office.
As the Covid-19 pandemic has lasted over two years, many companies have already set up their own organisational guidelines.
They would have to look at their own workplace, as hybrid working meant fewer people in the office.
"They might not need as much space as before, so companies should reassess how to utilise these spaces, converting them for other purposes or reducing it," Mr Rathawat suggested.
Flexible workplaces or co-working spaces will become more important as people look for agility and flexibility.
Those types of spaces come with lower expenses, which are more suitable for SMEs and startups.
The second trend in the office market will be a greater focus on environmental, social and governance (ESG) standards, which is a global trend.
It will be increasingly important for corporations when choosing their new office spaces.
As many countries are trying to reach a goal of carbon neutrality between 2030 and 2060, meeting the LEED (leadership in energy and environmental design) or WELL Building standards might not be sufficient for many tenants.
"Companies will look for office buildings that meet the carbon neutrality goal. As a result, office landlords or even those with projects under construction will have to adapt," Mr Rathawat said.
The third trend will be a quality relocation. As office space usage has changed during the pandemic, organisations are looking for better quality offices within a more limited space.
Having a high-quality office space did not only improve efficiency, Mr Rathawat said, but also helped retain talent and made businesses more attractive, especially for younger generations who consider their future working environment before joining a company.
"With new office buildings queuing up, old ones need renovation or refurbishment to attract companies that want to lure new talent. Otherwise, they will become obsolete," he added.
Over 70% of office buildings in the central business district (CBD) areas and 65% in the non-CBD locations were over 20 years old.
Facilities like elevators, air-conditioning systems or other components were old and would make them less efficient.
"If these buildings are not upgraded, they might not be able to compete in an increasingly competitive market where newer buildings are emerging and older ones are actively upgrading," Mr Rathawat said.