Older office buildings in Bangkok should accelerate their upgrades as existing tenants are relocating to new prime towers, widening the gap in rents, says property consultant Jones Lang LaSalle (Thailand) (JLL).
Anawin Chiamprasert, head of research and consulting, said an influx of premium supply poses a challenge to older assets, meaning buildings more than 20 years old, which account for 60% of the total office supply.
"Older buildings are no longer competitive," he said.
"Strategic renovation and asset enhancement programmes are becoming increasingly necessary to meet tenants' evolving needs and maintain occupancy levels."
According to JLL research, 60% of tenants have stayed in the same space for more than 15 years.
Many will be looking to upgrade and relocate to newer buildings offering better facilities, cutting-edge technology and sustainable office operations.
One complaint from tenants in old buildings is higher costs for electricity and water compared with new buildings, said the consultant.
When relocating to new buildings, tenants often report an improved experience, which boosts their productivity, said Mr Anawin.
"What appeals to office tenants is modern, high-quality facilities, tech-enabled spaces, sustainability and green initiatives, a variety of office spaces, an enhanced work-life balance and comparable rental prices," he said.
JLL suggested office landlords adjust to tenant demand. The top three recommendations for asset enhancement comprise aesthetics and design, energy efficiency and sustainability, and amenities and tenant experience, according to the consultant.
"Office buildings older than 10 years that had major renovations registered an 8.8% rent difference compared with those without renovations," said Mr Anawin. "This gap tends to widen. Renovated buildings are better positioned to retain tenants and ensure profitability."
One example of a property with improved performance after renovation is The Mall Lifestore Thapra. The mall's occupancy rate increased from 91% in the third quarter of 2021 to 98% in the fourth quarter of 2022, following the renovation.
"With new supply flooding in, ageing assets in various sectors, not only commercial, need attention," he said. "Developers and investors must consider revitalising these assets to remain competitive."
Sarut Virakul, director of office, advisory and transaction services at CBRE Thailand, said more than 850,000 square metres of office supply will be completed over the next two years.
"While this will give tenants a significant advantage in seeking favourable rental terms, these new international-standard buildings will bring new impetus to an ageing office stock where more than 60% of existing buildings are more than 25 years old," he said.
CBRE expects the momentum from last year to continue in 2024, with more companies considering moving to newer office buildings in established areas in Bangkok.
Buildings that are well-maintained and renovated to a high standard can expect to retain some companies, particularly those opposed to hybrid work, said Mr Sarut. Some tenants will relocate when they can find attractive lease terms from landlords eager to increase occupancy rates, he said.
"To improve occupancy, landlords should consider offering fully-fitted, turnkey solutions or instalment payment options," said Mr Sarut.