The growth in Bangkok’s office market increased in line with the remarkable development of the Thai economy in the late 1980s and early 1990s, as the total supply of office space expanded from around 1.5 million square metres in the early 1990s to about 7.5 million sq m currently.Companies began to realise the advantages of having quality offices in terms of location, convenience, prestige and effects on employee productivity. Thailand’s economic revolution drove demand for increased office space, and office projects began to offer better premises and facilities, including central air-conditioning, higher ceilings, and improved building floor plates. Tenants and developers soon moved away from office condominiums, as the strata title of such developments made it more difficult to offer seamless building management and services.
Bangkok’s Central Business District (CBD) is now defined by CB Richard Ellis as the area incorporating Silom, Sathon, Surawong, Rama IV, Phloen Chit, Wireless, early Sukhumvit, and Asok roads, and sois in between, but in the early days, the CBD was synonymous with the Silom area. During the 1990s, Thaniya Plaza was one of the most sought-after addresses, with monthly rents of 800-900 baht per square metre. As development increased, the CBD expanded to Sathon and Rama IV, where both the U Chu Liang Building and Abdulrahim Place are located. Opened in 1995, Rama Land Building was one of the first mixed-use developments in Bangkok, combining office, hotel and retail space. Office projects also sprouted up in the diplomatic area of Wireless Road, with All Seasons Place, another mixed-use project, a landmark in this area.
Before the Asian financial crisis, Thailand was one of the most attractive Asian economies for foreign investment, which fuelled demand for and growth in the office sector. However, the 1997 crisis led to many finance companies closing, pushing up vacancies, while other office projects that were under construction were suspended, or in some cases, abandoned as developers ran out of funds. The oversupply worsened in late 1998, and the total supply of roughly 6.3 million square metres suffered through vacancy rates of more than 30%. Vacancies were more pronounced in the CBD.
Some of the buildings suspended during the crisis were later revived by investors who purchased them at a bargain and completed the projects. Q House Lumpini, one of the most prestigious buildings in Bangkok today, was one such case. Other examples include the soon-to-be-completed Chamchuri Square (formerly C.U. Hightech Square), and Exchange Tower, located at the Asok-Sukhumvit junction.
The landscape for office development has changed since the crisis in many ways, as developers recognise the need to distinguish their products in order to compete. Design, facilities and services have all improved. More attention has been paid to the need for regular floor plates to eliminate wasted space. As companies have focused on cost savings, there has been a move toward smaller, more efficient offices, which requires floor plans that allow for easy subdivision. Most new buildings now offer higher ceilings, along with designs that cut down on noise.
Office rents in Bangkok are low when compared to other major cities both regionally and internationally. According to a recent CBRE report, office rents in Bangkok are the lowest of any major city in Asia, with the exception of Jakarta and Kuala Lumpur, and only a fraction of those in Hong Kong and Singapore.
Occupancy rates are now high in Bangkok (close to 90%), and given continually rising construction costs and the scarcity of quality CBD land, we believe that rents will have to increase soon as demand increases, and also in order to make future development worthwhile. Bangkok’s CBD is now firmly anchored by the BTS and MRT systems. Although office space outside the CBD can be had at a 10-30% discount over CBD space, this is a much smaller difference than in most other cities.
Going forward, demand for Bangkok office space will be driven by the country’s growing services sector. Any changes in regulation that encourage foreign participation would accelerate this growth. At the moment, Thailand lags many of its competitors in terms of the incentives given to international companies for setting up in Thailand, but we are hopeful that this will change as the country adopts to an increasingly competitive global economy.
