As around 1.4 million square metres of new office space is slated for completion between 2024 and 2026, landlords of existing office space should renovate or add new amenities to retain their existing tenants as new office towers will seek to attract both new clients and tenants of existing properties looking to relocate.
Panya Jenkitvathanalert, executive director and head of office agency at property consultant Knight Frank Thailand, said there is a surplus of supply in Bangkok's office market.
"Supply exceeded demand last year, but this year it will be more severe, with around 150,000 square metres from One Bangkok alone. This will be a game-changing year," he said.
During this challenging period, there will still be opportunities, as the visa-free scheme for Chinese visitors could help attract more businesses from China, particularly electric vehicle manufacturers and a variety of related downstream operators.
"Some new tenants of office spaces were local firms that relocated from home offices to high-rise office buildings of varying grades to attract young talented staff and capitalise on a decrease in office rental rates," Mr Panya said.
He suggested landlords of existing office towers should renovate their properties or add new amenities, such as co-working spaces or a link to a mass transit station, to retain their existing tenants.
"Retaining the existing tenants is the primary reason for improving old office buildings. Attracting new tenants is the secondary goal," he said. "Newly completed office towers aim to attract both new users and those looking to relocate."
As of the end of 2023, the average rent for office space stood at 816 baht per sq m per month, up 0.7% from 2022. The rent of grade A office space was recorded at 1,181 baht per sq per month, grade B office space cost 840 baht per sq m per month, while grade C office space was priced at 510 baht per sq m per month on average last year.
However, the annual rental growth rates for all grades of office space were still considerably lower than the 10-year average, mainly due to pressure on the supply side.
"The amount of future supply is very substantial, accounting for about one-fourth of the current supply," he said. "The largest amount is coming this year with around 648,000 sq m and more than half of it will be in central business district [CBD] areas."
"To retain existing tenants whose contracts are up for renewal, some office landlords are offering discounts of 5-10% or one-year free rental if the space is large," he said.
As of the end of 2023, Bangkok office supply rose by 4.6% to 6.05 million sq m while demand reached 4.7 million sq m, an increase of 2.5%, resulting in the overall occupancy rate falling to 77.7%, compared with a 10-year average of 88%.
"The occupancy rate in 2023 declined across the board, with grade A experiencing the largest decrease of 6.6 percentage points to 81%. But it remained the highest in the market," he said. "Grade A's 10-year average was as high as 92%."
Mr Panya said grade A witnessed the steepest annual decline due to the addition of new supply that outpaced demand and a trend towards rightsizing.
Occupancy of grade B saw a slight drop of 0.5 percentage points to 76% which was much lower than its 10-year average of 88%, compared to grade C which stood at 78% and 86%, respectively.
The office market in the CBD demonstrated robust demand which was stronger than in non-CBD areas. The demand in the CBD was mainly driven by new buildings, indicating a preference for modern, up-to-date office spaces.
In contrast, the demand in non-CBD areas showed a more mixed pattern, with interest spread across both new and older buildings, reflecting a diverse range of tenant needs and preferences outside the CBD.
"Many new office towers, particularly grade A, have incorporated energy-saving and sustainable features. This can attract multinational firms whose headquarters adhere to net-zero or ESG policies," he added.