Office buildings do not necessarily provide only offices for corporations. Many of them also make some space available to accommodate the rising demand of various retailers, from cafes, restaurants and convenience stores to fitness clubs and beauty salons that are seeking alternative sites for new outlets and business opportunities.
According to JLL's Thailand Property Intelligence Centre, there are approximately 1.5 million square metres of lettable retail space in office buildings across Bangkok. The majority of this space is situated on basement levels, ground floors and second floors. This excludes retail space in mixed-use buildings with office space and branded retail components such as Silom Complex (Central), Siam Tower (Siam Discovery), The Offices at CentralWorld, Bhiraj Tower (The Emquartier) and Emporium Tower (The Emporium).
While rents for retail space in office buildings vary depending on a number of factors such as location, foot traffic, street exposure, and the building's quality and profile, ground-floor rents range between 1,500 and 2,500 baht per square metre per month in well-located buildings and between 700 and 1,000 baht in less sought-after locations. Due to limited space and strong demand, these rents are generally higher than those for office space within the same building.
Rents for retail space on upper floors and basement floors are relatively lower. There are a few exceptions where retail space on upper floors commands higher rents. These include retail space on a mezzanine or second floor that connects the building with a mass-transit station.
The right business in the right place: Typical occupiers of retail space on the ground floor of office buildings are food and beverage outlets and retail banking service providers. In recent years, almost all of the leading coffee shop brands such as Starbucks and Au Bon Pain have established a strong presence in several office buildings. Cafe Amazon, the coffee shop brand that is typically found at almost every service station of its parent company PTT, has also expanded into retail malls and office buildings.
Convenience stores are another retail format that has emerged as a new source of demand for retail space in office buildings. 7-Eleven in particular has aggressively expanded into office buildings.
On floors with less foot traffic, retail businesses that are suitable are those that have their own strong appeal or aggressive marketing strategies to attract potential customers. Food courts and supermarkets as well as fitness centres are prime examples.
Food courts are a business that typically operates on an office building's basement or upper floor. While they mainly serve employees of companies occupying space in the building, they can also attract customers from neighbouring properties.
In certain office buildings that are popular with pedestrians, retail space in the basement or on an upper floor with easy access can attract supermarkets. For example, Central Food Retail operates Tops Market on the basement floor of Empire Tower on Sathon Road, and on the second floor at CRC Tower in All Seasons Place on Wireless Road.
Cautious approach: Though retailers have a keen interest in expanding into office buildings, they have adopted a cautious approach when selecting the space where they want to set up shop. Foot traffic and demographics (both building users and visitors) are the top criteria for choosing a building. While high foot traffic ensures more visits to the retail space and higher sales, targeting the right customers in the right place is no less important.
Likewise, although landlords need tenants to fill up space as quickly as possible, they can be extremely picky when it comes to securing retailers for their office buildings. Generally, reputed brands are preferred. However, there are cases where landlords favour a lower-profile food and beverage provider that offers more affordable food and drinks to building users. These landlords are those that put a greater focus on the viability of the retail business that will operate in their buildings. The failure of retail occupiers can reflect badly on the building's profile. In addition, many landlords try to avoid securing directly competing retailers in order to ensure a higher chance of success for retailers operating in their building.
Win-win opportunity: Retail space in most of the well-located office buildings in Bangkok is fully or almost fully occupied. Most of the space that remains available is in newly completed buildings or under-construction office development projects. While supply is tight, there has been continued demand from retailers -- both established brands and startups -- looking for new business opportunities outside traditional retail malls.
Landlords of office buildings with ample ground-floor space that might not have been designed for retail use originally may consider converting the space to capture this growing demand. This represents opportunities not only to generate more income from their real estate but also to help enhance the building's competitiveness. Retail support is among the criteria that corporate tenants use to select an office building.
Yupa Sathienpabayut is director of office leasing at JLL. For more insight, readers can contact her by email: yupa.sathienpabayut@ap.jll.com or visit www.jll.co.th
COOKING UP SUCCESS: Bakery and cafe chain Au Bon Pain has established a strong presence in office buildings across Bangkok, offering convenience for workers and pedestrians. photo: Sunan Lorsomsab