Prime-grade office vacancy rate set to surge next year
Attributed to influx of future supply
The vacancy rate of prime-grade offices in central Bangkok is expected to almost double to 30% next year, the highest since 1997, largely because of the influx of future supply, creating pressure on existing grade C office space.
Michael Glancy, country head of property consultant JLL Thailand, said vacancy rates of grade A office in Bangkok's central area will peak in 2023-24 as a wave of new supply is arriving with 226,314 square metres in 2023 and 174,414 sq m in 2024.
"With influx of supply, the office market next year will see the highest vacancy rate since 1997. The rate that year was 36%," he said.
"It will jump from 18.8% this year and will stay around 30% in 2025-26."
In 2025, new grade A office supply being completed will tally 74,000 sq m, while 139,000 sq m will be added in 2026.
"While the market will become increasingly competitive, leasing activity will be concentrated within new supply," he said. "Demand on new offices will be from existing tenants that currently rent spaces for over 12 years."
He said these tenants occupied office spaces totalling around 4.4 million sq m which accounted for 55% of total Bangkok office supply.
They most likely want to relocate to newer office spaces of a better quality.
"The flight-to-quality trend is clear and in effect. Old buildings are losing their appeal compared to new buildings. They will lose their tenants if they do not do anything to upgrade their spaces," he said.
Nichakamol Horungruang, research and consulting office lead at JLL, said the largest impact will be on grade C office spaces as most of them were physically unattractive, small in size with old specifications, floor-to-ceiling of lower than 2.5 metres and fat columns.
"Tenants at existing grade A will move to new grade A. Those at grade B will move to existing grade A and those at grade C will move to grade B," she said. "Existing supply should be renovated or upgraded, otherwise they will lose their tenants."
According to JLL, office buildings in Bangkok no more than 20 years old saw an average vacancy rate of 19%, along with an average rental of 816 baht per sq m per month, as of the first half of 2022.
Older buildings had an average vacancy rate of 22% and an average rental rate of 653 baht per sq m per month over the same period.
To accomplish this target, office landlords should consider new trends, particularly following the pandemic.
One of them is a shift to hybrid work as more than half of tenants are likely to adopt a remote working policy for all their employees by 2025, according to JLL's research.
"When applying for a job, talents prefer flexibility of working, such as an option to work from anywhere," she said.
"Flexible working means many firms may not need the same size of office they had before the pandemic."