The occupancy rate of Grade B office space in Bangkok continues to decline, reaching a market low of 75% as tenants relocate to higher quality Grade A spaces equipped with better facilities in similar locations.
Nattha Kahapana, managing director of property consultant Knight Frank Thailand, said an influx of future office supply across all grades, totalling 1.46 million square metres by 2028, poses a challenge for Grade B spaces.
"Grade B office spaces are typically in the same locations as Grade A," he said. "When offered competitive rents and deals from Grade A offices, which are newer and have better facilities, most tenants don't hesitate to upgrade and relocate."
According to the consultant's market research, the occupancy rate of office spaces in Bangkok has continued to decline across all grades, with the market average dropping 1.6% year-on-year to 76.8% in the second quarter of 2024.
The largest year-on-year decrease was in Grade A office spaces, where asking rents ranged from 901 to 1,600 baht per sq m per month.
These spaces saw a decline of 2.5%, bringing the occupancy rate down to 80%, though it remained the highest in the market.
Grade B office spaces, with asking rents between 551 and 900 baht per sq m per month, experienced the smallest decline year-on-year, falling by 1.2% to 75%, but it was the lowest occupancy rate in the market.
Grade C spaces, typically old properties with asking rents between 300 and 550 baht per sq m per month, had an occupancy rate of 77%, a 1.4% decrease from the second quarter of 2023.
As of the second quarter of 2024, Bangkok's total office supply reached around 6.16 million sq m, a 3.5% increase year-on-year, while demand was recorded at 4.73 million sq m, up 1.5%, resulting in an overall occupancy rate of 76.8%, a 1.6% decline.
The average asking rent was 817 baht per sq m per month, up 0.4%, while discounts from the asking rent ranged between 10-25%, depending on occupancy rates.
"Properties with occupancy rates below 30% allow tenants to have greater bargaining power for rents and fees," said Mr Nattha.
"These discounts, mainly offered by newly completed Grade A properties, prompted tenants from Grade B offices to return their leases and relocate to Grade A."
He said the challenge for Grade B landlords would intensify as over 1.16 million sq m of future office supply is expected to be completed within the next 2.5 years. About 60% are located in central business district areas, most of which will be Grade A.