Bangkok records largest amount of new office space supply since 2015

79,000 sqm of new supply were added in Q2, the largest amount in a single quarter since Q1 2015.

JLL revealed that two new projects completed in the quarter, adding 79,000 sqm of new supply to the market, the largest amount of new supply in a single quarter since 1Q15. The PARQ is Bangkok’s first office building built to WELL Gold standards. Sathorn Prime represents the first complete refurbishment of a non-prime building within the CBA that can now be considered prime grade.

With a large amount of new supply completing, only modest pre-commitments across the two projects, and generally weak new demand elsewhere due to COVID-19, the prime grade vacancy rate increased to 10.2% in 2Q20, up from 6.2% in the previous quarter.

Here’s more from JLL:

Recent completions grab lion’s share of demand

Net absorption totalled 21,000 sqm in 2Q20, with nearly all positive activity stemming from occupiers moving into newly completed projects. Much of this activity came in the form of flight-to-quality as many of the occupiers that relocated to The PARQ and Samyan Mitrtown came from non-prime grade buildings.

Leasing activity was subdued in 2Q20 due to the impacts of COVID-19. Transactions that were initiated prior to the onset of COVID-19 were generally still proceeding, albeit at a much slower pace – as of yet only a handful of occupiers have walked away from deals in progress. We expect this situation will continue over the next 1-2 quarters.

Yields continue to compress to record low levels

Despite a small quarterly decline, gross rents increased by 3.4% y-o-y to THB 984 per sqm per month, while net effective rents grew by 3.8% to THB 773 per sqm per month.

Capital value growth continues to outpace rental growth with capital values rising by 7.2% y-o-y, driven by higher investment costs and sustained investor interest in the sector. As a result, the market yield compressed to 6.1%.

Outlook: COVID-19 expected to moderate demand and rents

No new supply is scheduled to complete by end-2020 as the Vanissa Building and SIAMSCAPE have been pushed back to 2021. We expect vacancy to decline to 7.4% by end-2020, though the rate is likely to rise again in early 2021 with new supply expected to complete without significant pre-commitments due to COVID-19 delaying or freezing relocation and expansion activities.

Landlords are struggling to increase rental rates as tenants negotiate for rental concessions due to COVID-19 and we expect 2.2% y-o-y gross rental growth by end-2020, the slowest rate of growth in several years. At the same time, we expect the market yield to continue compressing.

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