It was the talk of the town when a leasing deal at Park Ventures Ecoplex, a premium office building on Wireless Road in Bangkok, closed at 1,000 baht per square metre per month in 2013. Today, rents at several Grade A office developments priced at above 1,000 per square metre are no longer a surprise. Even so, Thailand's capital remains one of the world's cheapest locations for Grade A office rents.

JLL's latest Premium Office Rent Tracker reveals that Kuala Lumpur has the world's most affordable Grade A office rents at the equivalent of 874 baht per square metre per month. In second place are Bangkok and Manila, at 1,020 baht, followed by Warsaw (1,165 baht) and Brussels (1,398 baht).

On the other hand, Hong Kong has the highest office rents in the world, with rates equivalent to 9,412 baht per square metre per month. New York City ranks as the second most expensive market at 5,653 baht, followed by London (5,624 baht), Beijing (5,537 baht) and Silicon Valley (4,604 baht).

LEADING THE WAY: Park Ventures Ecoplex pioneered four-digit monthly rental rates in 2013 and several other top-quality buildings in Bangkok have followed since then. photo: © Schindler Ltd

The tracker compares the top achievable gross rents of units sized over 1,000 square metres at premium buildings in premier office locations across 45 cities worldwide. In tall buildings, the middle zone is used as the benchmark.

In Bangkok, where office rents are still more affordable than in many other major cities across Asia, both international and domestic firms that have established or are looking to establish an office can enjoy relatively low occupancy costs, though the city's office rents have grown for seven consecutive years since 2011.

According to the JLL Thailand Property Intelligence Centre, average monthly gross office rents at the end of the third quarter of 2017 reached 531 baht per square metre per month across Bangkok and 823 baht in prime-grade buildings in the central business areas, representing all-time highs.

Limited new supply and low availability of larger blocks of contiguous space in central business areas are among the key factors pushing up prime rents. An example of this trend is the low average vacancy rate at 7.8% in prime-grade office buildings in the central business areas registered at the end of the third quarter of 2017. This trend is expected to continue in the short to medium term.

Strong demand for high-quality space has also fuelled the growth in rents. More and more corporate occupiers are looking to consolidate and streamline their operations in strategic locations that are talent hotspots, focused on spaces that are conducive to innovation and collaboration, and well served by mass transit, local amenities and technology infrastructure. Many of these occupiers are in the technology industry and include e-commerce firms, social media platforms and online advertising.

Another factor contributing to the growth in office rents is the increase in new supply of high-quality office spaces -- particularly those buildings built to LEED (Leadership in Energy and Environmental Design) Gold and Platinum standards -- that generally command higher rents because of advanced technical specifications and levels of finishing, fixtures and fittings, and professional property management.

Some leading buildings now secure new occupiers at rates slightly over 1,000 baht per square metre per month for medium and large leases, and even up to 1,300 baht for premium space. Others have continued to offer special rates at less than 1,000 baht to large occupiers.

However, as the shortage of prime quality office space in Bangkok has continued, most of the top buildings and development projects currently under construction are expected to raise their rates soon to more than 1,000 baht for larger leases. These rates are well in excess of Bangkok's Grade A average but remain more than nine times cheaper than that of Hong Kong.

COMPETITIVE ADVANTAGE

New office developments in Bangkok are looking to establish new high-water benchmarks for office rents. For example, One Bangkok -- jointly developed by TCC Assets Co Ltd and Frasers Property Holdings (Thailand) Co Ltd -- is being built to both LEED and WELL Platinum standards, and features a wide array of supporting facilities and amenities that will make the precinct highly desirable to occupiers.

Based on current market conditions, One Bangkok and other top projects in the pipeline are expected to achieve rental records once preleasing begins. That said, high-quality new supply is unlikely to change Bangkok's position as one of the world's most affordable office locations.

As the occupancy cost is a significant part of the expense of doing business, Bangkok, with its relative affordability, has a strong competitive advantage as a business location, particularly in Asia Pacific which is home to the world's most expensive premium office space at an average of 3,234 baht per square metre per month, higher than in the Americas (2,477 baht) and Europe, the Middle East and Africa (2,273 baht). n

Suphin Mechuchep is the managing director at the property consultancy firm JLL. For more insights, readers can visit www.jll.co.th, or www.facebook.com/JLLThailand