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Foreigners keen on buying city offices

Supply shortage, high rents spur demand

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Foreign investors are eager to acquire office buildings in Bangkok because of a shortage of new supply, very low vacancy rates and an increase in rents, says property consultant JLL Thailand.

Managing director Suphin Mechuchep said keen investors in the first quarter were from the Middle East, the US and Singapore. They are looking for office towers in Bangkok to invest with a budget of 3 to 10 billion baht apiece.

"Too small a scale may not be attractive for them as it is not worth the investment," she said. "The size of a building should be 27,000 to 90,000 square metres, while the central business district locations and grade A property are their main focus. Mixed-use is better."

She said these investors were interested in the Bangkok office sector as it generates a better yield than other key cities. In Bangkok, the yield from an office tower is 6.5-7% per year while it stands at only 2-3% elsewhere such as in Tokyo.

The attractive yield is derived from rising rental rates and limited new supply completed over the past few years.

"With attractive yields and rising rents, no office landlords want to exit at the moment," she said. "They also have other options like selling to a real estate investment trust where they can own one-third."

According to research on the Bangkok office market by JLL, new office supply completed in the first quarter of this year stood at two buildings with a total of 36,141 sq m. Total stock was at around 8.9 million sq m.

However, they were occupied by their owners, comprising Krungsri Ploenchit Tower, the new headquarters of Bank of Ayudhya on Ploenchit Road with 30,000 sq m. The other building is Chia Thai, owned by Charoen Pokphand Group with an area of 6,141 sq m near BTS Bang Chak station.

Net absorption in the quarter totalled 83,208 sq m with healthy demand for space in both prime and non-prime grade buildings. As a result, the market-wide vacancy rate reached 8.7%, the second-lowest level JLL has recorded since 1995.

In the grade-A segment, the vacancy rate fell to 6.1%, the lowest level since 1995. New demand in the quarter was driven by occupiers continuing to move into recently completed buildings.

At the same time, a strong performance by the non-prime, or grade B and C segment, caused the vacancy rate to decline to 9.7%.

Average rental rates across the market continued to move upward as landlords took advantage of the increasingly tight supply situation. Average gross rents reached 667 baht per sq m per month in the first quarter, up 4.1% year-on-year.

Grade-A rents experienced rapid year-on-year growth of 9.6%, reaching 811 baht per sq m per month, moving above the 800-baht benchmark for the first time. The robust rental growth was driven by strong performances at newly completed towers.

There are 12 projects in the supply pipeline scheduled for completion over the next 12 months through the first quarter of 2019 with a total area of 393,176 sq m. Three of them with 172,552 sq m are being built by government agencies solely for their own use.

The other nine towers had an aggregate pre-commitment rate of 33.2% while many projects were fully pre-let. With healthy leasing activity, JLL expects vacancy rates to continue moving downward, potentially setting modern market record lows.

With robust demand and limited new supply, JLL foresees rental rates rising by 3-5% over the next 12 months.

PROPERTY NEWS

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