Bangkok’s prime office net absorption hits 12,600sqm in Q1

Meanwhile, the vacancy rate increased to 19.9%.

Prime net absorption in Bangkok’s office property market totalled 12,600 sqm in 1Q23, according to a JLL report. The flight-to-quality trend continued to dominate the market. 

Large positive take-up figures were tracked in new and recent completions, while aged buildings struggled to maintain their occupancy level amid relocations to modern buildings. One City Centre opened with a moderate occupancy of 15%, though the project has leased out more than 40%.

Here’s more from JLL:

Known leasing volume in 1Q23 totalled 9,200 sqm, with the majority being signed to upcoming and recent developments. Two relocation deals were upgrades from old prime buildings, and another two new-let deals were from flex space and a standalone building.

Vacancy increases to 19.9%

One City Centre opened in the quarter and added 55,700 sqm to the market. With the wave of high-quality supply influx in the near term, five aged buildings were downgraded from the prime basket as they no longer match the new Grade A standard. Prime office stock in the CBA totalled 1,419,200 sqm.

Prime vacancy rate increased by 196 bps q-o-q to 19.9% in 1Q23, mainly due to unoccupied space in new completions. The rate remained high among older office buildings after right-sizing and the flight-to-quality trend after the pandemic.

Rental growth accelerates in contrast to stable yields

Prime gross rents increased by 2.1% q-o-q in 1Q23 to THB 955 per sqm per month, after remaining flat for five consecutive quarters. The growth was mainly due to premium rents in recent completions and downgrading activity. Net effective rents likewise increased by 2.1% q-o-q, though three buildings offered longer rent-free periods.

Market yield stabilised at 5.7% in 1Q23. Capital values remained high after existing buildings continued to be renovated and sought to apply for green credentials.

Outlook: New supply in 2023 to exceed record high seen in 1999

Looking ahead to end-2023, upcoming supply will total 228,000 sqm. Total supply addition in 2023 alone reaches the annual completion’s record high last seen in 1999. This supply influx should push the vacancy rate up to 25.9% despite robust leasing activity.

Upcoming high-quality supply should drive up average gross rents significantly. Both domestic and regional investors continued to show interest in office assets in Bangkok as the market improved further. However, the bid-ask spread remained wide, though on-sale assets in the market were over 25 years old.

Note: Bangkok Office refers to Bangkok's CBA Grade A office market.