c o l l i e r s i n t e r n at i o n a l | T H AILAN D

The Knowledge Report

B a n g ko k O f f i c e M a rk e t | 1 s t Q U A RT E R | 2 0 1 0

Executive Summary
No new office supply came onto the market in Q1 2010 and only a very limited supply is expected
until Q4 2010 with the scheduled opening of Sathorn Square.

Very little relocation activity in Q1 reflecting the ongoing political impasse deterring companies
Market Indicators
from making long term plans.

2009 - Q1 2010 Occupancy rates fell by 1% in the CBD and Outer CBD while the Northern Fringe recorded a
nearly 1% increase in Q1.

New SUPPLY Rental rates remained more or less the same in the CBD for Q1, although a fall in rates was more
pronounced in the Northern Fringe. This was likely to be a correction to the steep rise in 2009.
Demand
As of March 31st, no discernable impact on the office market has come about from the ongoing
demonstrations. However if these become protracted and effect the CBD area then this could have
Rentals a negative impact over time as leasing contracts expire. Investors are also likely to put expansion
plans on hold or pull out completely.
occupancy

Office Zoning

The general lack of zoning restrictions in Bangkok has led to the existence of significant office
supply in a wide range of locations in the city and how the market has perceived the CBD has
evolved over the past 20 years. The original CBD was located in the Silom and Surawongse roads,
home to the vibrant gold market and other trading businesses. The development of modern office
buildings with a larger floorplate in the nineties could not be accommodated in this area and the
CBD began to take shape in the eastern section of Sathorn road. While Sukhumvit road up to
Asoke is primarily perceived as an entertainment and residential area, a large number of grade A
buildings sprung up in the nineties and also in the past few years. It is therefore considered as part
of the CBD. As a working definition the CBD, for the purposes of office classification, is where a
significant number of Grade A office buildings are located. As such the old CBD is considered Outer
CBD as well as Petchburi road where more grade B offices are located. Over time this structure could
evolve.

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The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market

Zoning

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Historical Supply

Cumulative supply in Bangkok

Source : Colliers International Thailand Research

The office market landscape even today is a product of a five
year boom period from 1992 to 1996 prior to the Asian Financial
Crisis. Even after the crisis projects continued to be completed
culminating in the 140,000 sq m Empire Tower in 1999, still the
largest office building in the whole of Bangkok. The following
five years were a fallow period for the office market as only a total
of around 186,000 sq m was completed which reflected the mori-
bund property market in general in Bangkok at that time. It was
only in the second half of the decade did growth in supply pick
up with over four and half times more new supply being added in
the last five years compared with the first five.

Additional supply for each year

Source : Colliers International Thailand Research

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The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market

Supply by Zone

Office building supply by zone, 1994

Source : Colliers International Thailand Research

The proportion of supply of office space by area shows how itself covers a wide area in Bangkok. Even with the Outer CBD
decentralized the office market is in Bangkok and how over the included the figure still comes to well below half of the total.
first 15 years this trend has become more pronounced. Less than
30% of office space is located in the CBD as of Q1 and the CBD

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 The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market

Office building supply by zone, Q1 2010

Source : Colliers International Thailand Research

Regional comparison

Total stock of office both CBD/Non-CBD in selected Asia-Pacific countries

Source : Colliers International Thailand Research / Colliers International Country Offices

The diffuse nature of the Bangkok office market is highlighted by
a comparison with other countries in the region. A much great-
er proportion of office space is located outside the CBD. The
situation regionally is likely to change in favour of non-CBD
locations due to the growth of the business process outsourcing
(BPO) market and this is especially evident in the Philippines
where a large number of offices are being built outside the Manila
CBD as well as other cities such as Cebu.
The interesting aspect of the office market in Thailand as a
whole is that almost all office space is located in Bangkok itself
with only a negligible amount in the regions. Most office func-
tions take place in shophouses and townhouses in similar fashion
to Phnom Penh in Cambodia. This contrasts with other Asian
countries which have office located in other parts of their coun-
try such as Cebu in Philippines, Surabaya in Indonesia, Penang
in Malaysia and Busan in Korea.

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Office size

Average size of office building according to area

Source : Colliers International Thailand Research

The Outer City West has the highest average size in Bangkok
but due to the limited number of offices in this area, one build-
ing; the Thai Farmers Bank Head Office, with over 74,000 sq m
of NLA, raises the average somewhat. The CBD comes in sec-
ond place largely due to the number of grade A office buildings
containing a large floorplate and consequently greater building
size. The smaller sizes reflected in the Outer CBD reflects the
space limitations and smaller, older buildings located in west Si-
lom and Surawongse. One notable feature is the smaller sizes in
the Outer City East. In many Asian cities large office buildings
are located outside the centre in order to accommodate the BPO
industries which often require a large floorplate but low rentals.

Supply by Ownership

Supply by ownership, Q1 2010

Source : Colliers International Thailand Research

A significant number of offices are multi-owner in what are also
referred to as office condos. Almost all of these were built prior
to 2000 when investors were looking to make rapid capital gains
during the boom period that preceded the economic crash in
1997. There are some advantages of occupying multi-owner of-
fice such as separate air conditioning systems which are cost ef-
fective for companies operating in non-working hours. However
there are disadvantages in the form of sometimes uncoordinated
property management and more expensive air conditioning sys-
tems for companies using office predominantly in working hours.
However occupancy rates are in general higher in multi-owner
offices.

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 The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market

Future Supply

Future Supply By location

Source : Colliers International Thailand Research

It is interesting to note that future supply for the next couple of
years will occur predominantly in the CBD area while no new
supply will be constructed outside the Outer or Inner CBD. In
fact the new supply will consist of only three projects with the
lion’s share coming from Sathorn Square at the end of 2010.
While the trend in other cities in the region is to focus away
from the CBD the situation in Bangkok is reversed as there is
already a large proportion of existing supply located outside the
CBD.

Demand – Take up

Occupancy rate by location, Q1 2010

Source : Colliers International Thailand Research

The Outer City West area has the highest occupancy rate, due and Outer City East is the likely reason for the lower occupancy
to only 18 office buildings being located in this area and a low rates in these locations.
rental rate. The lack of mass transit lines in the Southern Fringe

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The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market

Demand by Grade

Source : Colliers International Thailand Research

The highest demand in Q1 2010 was for Grade B buildings which registered a higher occupancy rates.

Demand Drivers

Thailand remains in fourth place in the A.T. Kearny’s Global
Services Location Index 2009 compared to 2007. This index
ranks the top 50 countries worldwide for locating outsourcing
activities, including IT services and support, contact centers
and back-office support. While ahead of Indonesia (5th) and
Philippines (7th) it remains firmly behind Malaysia, China
and the king of them all, India. The Phillipines is making great
strides to become a key BPO centre. The other ominous sign
is the dramatic rise of Vietnam, up nine places to tenth spot.
A number of very large BPO companies have set up shop in the
outer districts. While Thailand could benefit from the enormous
potential growth it lags in relation to certain skills, especially
second languages, that prevent it form being regarded as a key
player.

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Exports from Thailand on quarterly basis

Colliers International Thailand Research

Source : Bank of Thailand

Industrial growth is the main driver that powers the office mar-
ket as this leads to the need for trading, financial, legal and
insurance services amongst others to support it. After a dramatic
drop in exports starting at the end of 2008, they have started
to recover in the last three quarters. This bodes well for future
demand for office space although ongoing financial problems
in Europe and the general retracement of fiscal stimulus in the
majority of Thailand’ exports partners could spell many
problems, exacerbated by foreign currency weakness of the
Euro.

Total FDI for various sectors as percentage 2000-2004

Colliers International Thailand Research

Source : Bank of Thailand

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Total FDI for various sectors as percentage 2005-2010 February

Colliers International Thailand Research

Source : Bank of Thailand

The charts show the predominance of industry in FDI spending
compared with the services and financial sectors. However the
financial sector has held greater promise over the past five years
but the services sector still continues to languish. Much of this
FDI would be related to the hospitality industry and therefore
very little investment is made into businesses that directly drive
office demand. The fact that the Board of Investment has largely
focused their attention on the industrial would partially account
for this.

Occupancy

Occupancy rate in 3 locations, 2001 – Q1 2010

Source : Colliers International Thailand Research

The occupancy rate in the CBD area fell approximately 1% and
in the Outer CBD a similar decrease was recorded. However the
Northern Fringe recorded a 0.9% increase which is likely due to
the falls in rental rates. The overall rise in occupancy rates for
the first half of the last decade can be attributed to the limited
new supply coming on stream accompanied by steady economic
growth which drove overall demand. However the second half of
the 2000’s was a period of relative stagnation in the market due
to political tensions in the country alongside the global financial
meltdown in 2008.

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Rental Rate

Rental rate by zone

Source : Colliers International Thailand Research

Unsurprisingly the CBD commands the highest rental rates due
to the location and number of grade A buildings. Interestingly
rents in the Northern Fringe are considerably higher than the
Outer CBD. This could be explained by the fact that a signifi-
cant number of offices are located close to both the BTS and
MRT lines in the area while most offices in the Outer CBD are
located some distance from mass transit lines. While Colliers
International Thailand have research that shows that
condominium prices are higher the closer they are to mass transit
stations, the same seems to be the case for offices. Being located
near a mass transit station is preferable for both employees and
business visitors alike.

By Grade

Source : Colliers International Thailand Research

Grade A offices have greater rental rates than those of grade B. that competition between these grades is intense and tenants see
The difference between grade B and C is rather small reflecting less distinction between the two.

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Rental Rate

Historical rental rate in 3 main locations, 2001 – Q1 2010

Source : Colliers International Thailand Research

In Q1 2010, rental rates for office buildings in CBD area fell in the Northern Fringe but this was likely to be a correction after
slightly by 0.3% compared to Q4 2009. Rates fell more sharply the steep rise in the previous year.

By Grade

Source : Colliers International Thailand Research

Rental rates of grade A office building have remain stable from favourable terms for tenants to maintain occupancy during
2007 while grade B recorded a small drop. Colliers International difficult economic times, especially for small businesses.
Thailand have noticed that some landlords have offered more

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 The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market
Forecast
Limited new supply for the next two quarters is likely to main-
tain current rental and occupancy rates despite ongoing political
tensions dampening demand. The addition of Sathorn Square
in Q4 2010 will be a significant amount of space to absorb if the
current impasse continues throughout the year.
Limited market activity is expected for Q2 due to the ramping
up of political tensions that could define that quarter. A return
to stability could lead to a rise in occupancy due to companies
resuming their growth strategies on the back of an increase in
industrial activity.
A widening of incentives from the Board of Investment for the
non-hospitality service sector would help encourage growth in
the burgeoning BPO market as well as other areas that can help
to drive demand for office space. A focus on the regions would
help kick start office development where it is currently non-ex-
istent.
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 The Knowledge Report | 1st Quarter | 2010 | Bangkok Office Market

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