Commercial market slide in office and retail rents has begun

Bangkok Office Space

Bangkok Office Space

Occupancy rates fall with reduced spending by multinationals

Three international property agencies expect Bangkok’s rental market to fall by 5 to 10 per cent next year when multinational firms begin to slash spending as their head office operations suffer under the impact of the global economic crisis.

Colliers International Thailand’s managing director Patima Jeerapaet said demand for office space, serviced apartments and retail space had fallen significantly in the current quarter because US and European multinationals were beginning to suspend business expansion around the world, including that in Thailand.

“Our customers are trying to reduce their office space to save money, and some are moving from grade A locations to grade B,” he said.

The occupancy rate of serviced apartments has also fallen in the last quarter of 2008, with foreign firms cutting staff or reducing allowances for their accommodation.

The outlook for 2009 in Thailand’s industrial estates is similar. Multinational companies, especially those in the auto industry, are expected to reduce investment in expansion, and this will drag down demand for industrial space.

“In our business view, Thailand’s commercial property sectors, including industrial estates, office space and serviced apartments, will suffer a direct negative impact from the global economic crisis,” he said.

Jones Lang LaSalle (Thailand)’s managing director Suphin Mechuchep said the global economic malaise had already begun to affect Thailand’s property market, especially highrise residential projects and commercial projects.

According to the company’s research, rental fees for office space fell in the current quarter from an average of Bt616 per square metre per month for grade A office space earlier this year to Bt600. Meanwhile, office space is expected to be in significant oversupply in Bangkok next year. New office buildings with a total of 200,000 square metres of floor space will be completed at the same time as the new government centre at Chaeng Wattana opens its doors with 400,000 square metres of office space, Suphin said.

“Offices for rent and serviced apartments will feel a negative impact from multinational firms reducing office space”Jones Lang LaSalle also foresees falling demand for office space as multinational firms trim costs by opting for smaller, or cheaper, floor space.

Bangkok currently has 7.7 million square metres of office space, with an occupancy rate of 86 per cent.

Suphin said rental fees for retail space would also fall significantly next year because the number of shoppers - both domestic and foreign tourists - would decrease.

Among the property sectors already feeling the pinch is city condominiums, for which demand has fallen steeply in the last quarter of the year.

“We believe that if the new government introduces measures to boost investors’ confidence, the property market may recover in the second half of next year,” she said.

The managing director of international property agency CB Richard Ellis (Thailand), Aliwassa Pathnadabutr, said her company’s research showed that all property segments had fallen in the current quarter, some of them significantly, others only slightly.

This was a sign that the property market could drop by 10 to 20 per cent in 2009, which would make it the worst tumble since the financial crisis in 1997.

Offices for rent and serviced apartments will feel a negative impact from multinational firms reducing office space and staff, and this will show up in lower occupancy rates in 2009, she said.

However, she believes Thailand’s property market will recover in 2011, at the same time as the global economy recovers.

“We believe that this recovery cycle will be faster than that after the 1997 financial crisis because global leaders, including the US, the UK, Europe, Japan and China, have launched measures to solve the problem. Thailand’s property developers and finance firms are also healthier, financially, than they were after the 1997 crisis,” she said.

About the author

Somluck Srimalee Somluck Srimalee
Somluck Srimalee is a journalist with The Nation, Bangkok's independent English language newspaper and specialises in the property and real estate sectors.
Other posts by Somluck Srimalee ( 34 )

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