Demand in Bangkok's office market will remain robust over the next three years in light of limited supply and scarce vacant land in commercially viable locations, says property consultancy JLL.
"Offices are now the most attractive property segment for investors, as the occupancy rate is high with a rising trend in rental rates, driven by strong demand," said managing director Suphin Mechuchep. "Keen investors include Thais and foreigners."
Mitsubishi Estate Group, a large Japanese developer in a joint condo venture with SET-listed AP Thailand Plc, said last week that it was looking for a partner to invest in office development in Bangkok.
Mrs Suphin said some interested investors include residential project developers who want to shift from the condo market, which has been declining since last year, but there are limited options for them to penetrate it.
One choice for office investment involves finding a land plot for new development. But doing so is not easy as attractive pieces of land in prime locations like the central business district are scarce and land prices are very high, making them unfeasible for office development.
"Landlords who own an office building in prime locations don't want to sell as the returns are good," said Mrs Suphin. "Landlords also have another way to sell their property, through a real estate investment trust, in which they continue owning a one-third stake and see continued income generated through REIT management."
REIT's also have a leasehold option, which means the assets will return to landlords once the lease contract is expired, she said.
Investors are turning to leasehold plots, but locations must be prime like Silom, Sathon, Phloenchit and Wireless Road, where the occupancy rates are over 90% and average rental rates are the highest in country.
"We have just sealed two land plot deals in the central business district in Bangkok, where the landlords and investors have agreed to long-lease contracts," said JLL.
According to a JLL study, new office supply set to be completed during 2017-21 totals 1.06 million square metres, comprising 220,100 sq m in 2017, 216,824 sq m in 2018, 138,992 sq m in 2019, 180,184 sq m in 2020 and 307,500 sq m in 2021.
Given those figures, new office supply each year until 2020 will be limited.
Two large towers with combined space of almost 200,000 sq m will be completed in 2021. One is a 100,000-sq-m building at the intersection of Rama IV and Sathon, developed by TCC Group, owned by billionaire Charoen Sirivadhanabhakdi; another, the Super Tower on Rama IX Road with 90,000 sq m, will also be completed that year.
Office rental rates increased 7-8% per year during 2011-16.
Mrs Suphin said Bangkok's luxury condo market has continued to grow but the mass market segments are saturated, with demand withering and prices stagnating. Those trends are expected to continue into 2017.