Bangkok office vacancies hit 7-year high of 11.6% in Q4 2020

Tenants right-sizing their footprints caused negative net absorption.

Net absorption in Bangkok totalled -7,000 sqm in 4Q20, while annual net absorption for 2020 totalled 29,000 sqm. JLL notes that many tenants, particularly larger anchors, continued to right-size their space in the quarter by downsizing in place, and in a few instances, relocating to non-prime buildings in the CBA.

New leasing activity remained muted – only one lease transaction larger than 1,000 sqm was recorded in the quarter, a foreign bank moving into the recently completed The PARQ project. Other leasing activity in the CBA was mostly from renewal deals in non-prime buildings as occupiers seek to wait out the COVID-19 storm.

Vacancy rises to its highest level since 2013

No new supply completed in 4Q20 leaving the amount of prime grade stock in the CBA unchanged at 1.31 million square metres. Three new projects spanning more than 58,000 sqm of leaseable space are expected to complete in 1Q21, including Siamscape at Chulalongkorn University, the Vanissa Building on Chidlom Road and Kronos Sathorn on Sathorn Road.

The CBA prime grade vacancy rate rose to 11.6% in 4Q20 amid negative net absorption caused by the aforementioned occupier right-sizing. The rate is the highest level seen since 1Q13 when the market was still recovering from the GFC.

Largest rental decline since 2010

Prime gross rents fell by -4.4% y-o-y to THB 940 per sqm per month, while net effective rents similarly fell by -4.9% y-o-y to THB 734 per sqm per month. Landlords continued to offer more discounts and longer rent-free periods for both new leases and renewals.

Capital values fell by -0.9% y-o-y to THB 149,200 per sqm. With lower achievable rents and high development costs, the market yield compressed to 5.9% in 4Q20.

Outlook: Rents set to continue declining as vacancy is set to rise

Six new projects are scheduled complete in 2021 adding more than 164,000 sqm of new supply to the prime CBA market. Apart from UOB’s new headquarters at BTS Phrom Phong station which will not impact the leasing market, pre-commitment rates across the five for-lease projects are low. With COVID-19 headwinds, leasing activity is likely to remain muted and vacancy should rise to 13.6% by end-2021.

We expect both gross and net effective rents to continue falling throughout 2021 at a broadly similar pace to the decline in 2020 due to weak sentiment in the leasing market and a large amount of new supply. We expect gross rents to fall by -4.5% y-o-y by end-2021 with net effective rents set to fall further as landlords offer more incentives to lure occupiers.