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Nexus predicts office surge

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The office market is likely to face fierce competition in the next 3-4 years as the supply of Grade A office spaces increases by 30% from 1.175 million in the central business district (CBD), says Nexus Real Estate Advisory.

The consultancy recommends landlords conduct maintenance to keep their buildings looking new for better rental rates.

"Over the past 10 years, the average vacancy rate has stayed within 10%, which is already low. The current average vacancy rate is only 7-8%, and tends to fall over time. As more new companies form and more foreign companies seek office space, limited supply keeps the vacancy rate low," said Teerawit Limthongsakul, managing director of Nexus.

However, the low vacancy rate will not persist because several projects are going to be launched, especially on Rama IV Road, where there are at least three projects -- Samyan Mitrtown, The PARQ and One Bangkok. The three projects are estimated to have a combined rental space of 350,000 square metres, or 30% of the current Grade A office space in the CDB area. Each project will be completed during the same period, so supply will rise quickly in the next 3-4 years and the vacancy rate of office spaces will probably surge above 10% for the first time in 10 years.

The average vacancy rate of 10% is also the average rate in Asia, reported Cushman & Wakefield, which is allied with Nexus. It found the vacancy rates in Asia's Grade A office markets in the CBD area were similar in the second quarter. Compared with other Asian countries such as Singapore, Hong Kong, Shanghai and Beijing, the vacancy rate in Bangkok is at a satisfactory level.

Nexus found the rental rate of Grade A office space in both CBD and non-CBD areas recorded new records in the third quarter this year. The highest rental rate is 1,500 baht per sq m per month, and the average rental rate is 980 baht per sq m per month. It found the average age of Grade A office buildings in the CBD is 17 years.

Some buildings have prepared for maintenance or are planning renovations to enhance their potential and respond to changing demand. The age of office buildings also affects the rental rate.

Nexus found the average rental rate of new office buildings up to five years old are as high as 1,200 baht per sq m per month. At this age, landlords begin efforts to renovate their buildings for higher rental prices, particularly Grade B office buildings in Silom. The company believes there will be more Grade A office buildings developed in Silom area in the future.

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