Office demand turns negative in 1st quarter
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Office demand turns negative in 1st quarter

Firms want green, downsized spaces

High-rise office buildings in the central business district of Bangkok. (Photo: Pattanapong Hirunard)
High-rise office buildings in the central business district of Bangkok. (Photo: Pattanapong Hirunard)

The office market recorded negative absorption in the first quarter of 2024, ending a consecutive seven-quarter rise from mid-2022, as demand shifted from non-green to green spaces and downsized offices, according to property consultant Knight Frank Thailand.

Panya Jenkitvathanalert, executive director and head of office strategy and solutions, said net absorption for non-green office spaces saw a further decline to -35,100 square metres, while that for green office spaces remained strong at 29,600 sq m.

"The total occupied space in the Bangkok office market decreased by 5,500 sq m, remaining at 4.7 million sq m," he said. "This quarter marked the onset of negative net absorption for Grade B."

He said Grade B offices continued to underperform, with an occupancy rate of 75%.

Many offices previously classified as Grade A have been downgraded to Grade B, losing key tenants to newer buildings of the same or higher grade.

Despite experiencing the lowest year-on-year decrease of 1.4%, Grade B was the only segment with an occupancy rate below the market average of 77%, while Grade C had an occupancy rate of 78% and Grade A reached 80%.

However, all were below the 10-year average, with a market average of 88%, Grade A at 92%, Grade B at 88%, and Grade C at 85%.

The largest year-on-year decrease in occupancy rate was in Grade A with a decline of 4.7%, mainly attributed to supply-side pressure, while Grade C was the only segment with a quarter-on-quarter rise, at 0.3%.

Throughout the last year, all grades showed positive net absorption. Grade A saw the largest increase in total occupied space at 70,500 sq m, primarily driven by large or well-established corporations seeking new, modern facilities in prime locations.

Nearly half of Grade A offices achieved green certification, making them particularly appealing to companies required to occupy spaces that adhere to stringent environmental, social, and governance (ESG) criteria.

Over the past year, annual net absorption highlighted a trend where new leases increasingly prioritised green office space, totalling 138,700 sq m, in contrast to -37,000 sq m for office spaces without green certifications.

This quarter also saw the office market outside the central business district (CBD) demonstrate robust demand, with a net absorption of 20,800 sq m, in stark contrast to the CBD area, where net absorption was -26,300 sq m.

The activities in the CBD were primarily driven by relocations from older to newer buildings, which offered greater incentives.

This is especially notable given that the new supply in the CBD is expected to reach a historic high in 2024.

A notable observation during this quarter was the increasing preference for smaller unit sizes, reflecting a possible adjustment in the market towards more compact and cost-effective office solutions.

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