Bangkok office vacancy to hit 10-year high by end-2021

Weak pre-commitments are expected to drive vacancies to reach 14.5% this year.

According to JLL, prime net absorption in Bangkok’s office segment totalled -190 sqm in 1Q21. Large anchors continued to reduce footprints, seeking to “right-size” in line with changing space requirements due to more flexible workplace arrangements. At the same time, a number of smaller occupiers relocated to non-prime buildings in the same area. Positive take-up in the quarter came from leasing activity at The PARQ of around 4,000 sqm.

No new leasing deals were recorded in 1Q21. The only deal larger than 1,000 sqm recorded in the CBA prime market was a lease renewal. Other new letting activities were seen in non-prime buildings.

Here’s more from JLL:

COVID-19 pushes new completions to 2Q21

No new supply completed in 1Q21, leaving total prime stock at 1.3 million sqm. Three projects that were previously scheduled to open in the quarter were delayed to 2Q21, as a result of the second wave of COVID-19 in end-2020 and the first two months of the quarter.

The CBA prime vacancy rate remained stable at 11.6% in 1Q21 due to muted demand. We foresee another uptick in vacancy when new projects complete with small pre-commitments over the next quarter.

Extra rent-free period depresses net effective rents

Prime gross rents declined by -6.4% y-o-y to THB 928 per sqm per month. Landlords continued to offer extra rent-free months on top, which resulted in a larger gap between gross and net rents. The largest rent-free period observed was three months for fit-out plus an extra three months rent free. Net effective rents fell by -10.9% y-o-y to THB 694 per sqm per month.

Capital value growth fell by -4.6% y-o-y. With high development costs, investor interest increasingly bearing down and rapidly falling rents, market yields compressed further to 5.8% in 1Q21.

Outlook: Weak pre-commitment to drive vacancy to 10-year high

Six buildings are scheduled to open in 2021 totalling 164,000 sqm, where pre-commitment rates across the five for-lease buildings are low. Existing large tenants should continue “right-sizing” their spaces and relocate to newer buildings, while smaller tenants might choose to move to less expensive Grade B buildings. By end-2021, we should see a further rise in vacancy to 14.5%.

Landlords should continue to offer rental discount extra rent-free months to retain existing occupiers, while newer buildings should offer extra discounts for early-birds. We expect gross rents to fall by -2.4% y-o-y in end-2021, while net effective rents should fall at a more aggressive rate of -6.5% y-o-y. The Bangkok market will continue to shift in favour of tenants.