An aerial view of high-rise buildings in Bangkok. Mr Sarut said the overall vacancy rate for Bangkok office space rose to 18.2% in the first half of 2024, up from 16.7% in the second half of 2023. (Photo: Nutthawat Wichieanbut)

The vacancy rates for Bangkok office space has continued to rise, particularly in the central business district (CBD), driven by a significant increase in new premium-grade supply, according to property consultant CBRE Thailand.

Sarut Virakul, head of office services, said the overall vacancy rate for Bangkok office space rose to 18.2% in the first half of 2024, up from 16.7% in the second half of 2023.

"The market has shifted from being a landlord to a tenant market due to the surge in premium office supply," he said. "The recent increase in new office stock is also affecting the cyclical dynamics of supply and demand."

As of the first half of 2024, total office supply increased 2.3%, reaching 9.74 million square metres, up from 9.52 million sq m in the second half of last year.

An additional 260,000 sq m of new supply is expected to enter the market in the second half of 2024.

This influx will likely continue to impact vacancy rates, which CBRE projects could reach 22% by the end of the year.

Bangkok has seen a steady rise in vacancy rates since 2019, from below 10% to 18.5% in the second quarter of 2024.

This marks an increase from 17.8% in the first quarter, 16.7% in the fourth quarter of 2023, 16.5% in the third quarter and 15.7% in the second quarter of 2023.

With most of the new supply concentrated in the CBD, the average rent for Grade A office space in this area dropped to 900 baht per sq m per month in the first half of 2024, down from 925 baht per sq m in the second half of last year.

Many tenants have relocated to newer, higher-quality Grade A+ buildings, resulting in rental declines for older properties that are struggling to maintain occupancy and competitiveness.

"Firms in the consulting, insurance and finance sectors are leading the relocation and expansion activities in premium office buildings as they can afford higher rents," said Mr Sarut.

"Recent transactions by e-commerce companies also show a mix of expansion and relocation to new buildings."

He added that multinational corporations continue to drive office leasing demand, with a sustained trend of 'flight to quality' as companies seek higher-grade office space.

"The increase in new supply is fuelling this trend and prompting office landlords to rethink their leasing strategies," he said.

Despite the costs, landlords of older properties are upgrading building technology and enhancing the overall tenant experience to stay competitive. Some are also offering fitted-out space to smaller tenants at a rental premium.

"Landlords of older and underperforming buildings should consider improving facilities or exploring redevelopment options for alternative commercial uses," he said.

"Some are already planning to convert their properties into hotels to address the increasing competition in the market."