OFFICE BUILDING IN BMR

Transcription

1 F 218F 219F THAILAND INDUSTRY OUTLOOK OFFICE BUILDING IN BMR August 217 Patchara Klinchuanchun Over the next three years, the office rentals sector is expected to see continuing growth thanks to a recovering economy and increasing demand supported by strong regional connections. At the same time, new supply to the market will remain somewhat restricted, particularly in the central business district, and this will help to maintain occupancy rates of over 9% and to raise rents. Compared to other countries in the ASEAN group, the Thai office rentals sector has strong potential for growth due to Thailand s geographical location at the center of the region, relatively low rents, and the efforts by the Thai government to stimulate investment. These factors help to make Thailand more attractive than other ASEAN nations to foreign investors, whether that be the many companies which are currently located in the area and which plan to expand their Thai branches or new entrants to the region. Overview The majority of rentable office space in Thailand is in the Bangkok Metropolitan Region (BMR) (Figure 1) and here developments are usually of two forms: high-rise developments 1/ or large buildings 2/. These may either be rented as a single large unit to a single company on a given floor or be divided for renting as many smaller units, with these buildings thus having a number of companies operating on the same floor. Owners of buildings will be responsible for supplying and maintaining utilities and facilities such as electricity, air-conditioning, lifts, car parks and so on. Office buildings in the BMR has tended to cluster in the central business district (CBD), which is in the heart of Bangkok, centered on the districts of Silom, Sathorn, Ploenchit, Wireless Road, Asoke, and the top end of Sukhumvit (to Soi 24). The CBD is home to the regional headquarters of many international companies, as well as to high-end residential accommodation, shopping complexes and hotels and is also well served by transportation links including the BTS, MRT and expressways. Success comes at a price, though, and further development is limited by, among other factors, a lack of available land and so most new developments are taking place in areas around the CBD or in the suburbs, in areas such as Ratchadaphisek, Vibhavadi Rangsit, Chaengwattana and Bangna. Developing office rental space in the CBD is very capital intensive and so most of the market is controlled by large operators which have the requisite financial strength, in particular by those with significant amount of land banks. However, supply of new rental space for development is restricted, especially in the expensive prime area 3/ and this problem may be compounded by city planning regulations which limit the construction of office buildings over 1, sq.m. in certain districts, although in central commercial districts of Bangkok these will generally be permitted. In contrast to the CBD, investors in office space in districts surrounding the CBD and in more outer zones are usually mid- to large-sized companies, which have different investment patterns, including investing in small developments used for the investor s own operations, though with parts rented out, through to commercial property fully divided for rent. Figure 1: Office Building Construction thousand sq.m. 1,6 BMR Upcountry 1,2 8 4 Source: REIC Figure 2: New Supply by Area sq.m. 3, CBD Non CBD 25, 2, 15, 1, 5, 1/ High-rise developments are defined as those which are over 23. meters high. 2/ Large buildings are defined as those which consist of a single structure with a combined floor space (a single floor or all floors combined) of 2, sq.m. or more. Single structures which have a combined floor space (again, a single floor or all floors combined) of between 1, and 2, sq.m. but which are 15. meters or more in height are also classified as large buildings. 3/ Prime areas are those which developers view as having investment potential, taking into account the accessibility of the site through communications and mass-transit networks and the infrastructure which is available there. In Bangkok, prime areas include, for instance, Silom, Sathorn, Wireless Road, Ratchadamri, and Ploenchit. 1

2 Thailand Industry Outlook Office Building in BMR Rental values are determined by a building s location, accessibility, quality, safety and the facilities and amenities which are provided. In addition to this, demand will of course play a role and in Thailand, the growth of the service sector continues to push this up and with it, prices. The index of office rental prices for Asia-Pacific, which covers a total of 2 locations, shows that for the first quarter of 217, Bangkok saw the greatest rate of increase in rental prices for the whole region, rising 3.1% QoQ and 9.6% YoY (Table 3) and these increases are expected to continue, driven by continuing strong demand and only slow expansion of supply (source: Knight Frank). Demand for office space in the BMR comes from both Thai companies and international ones, particularly now from businesses in the industrial and technology sectors, which are increasingly opening offices in the country. In terms of domestic demand, the Thai economy contains a large number of SMEs and these companies are restricted in their ability to fund their own buildings and so are forced to rent. These rentals have been concentrated in the CBD and this has enabled property developers to use their more advantageous negotiating position to extract higher rents, which continue to rise. Continuing strong demand combined with relatively low annual levels of new supply help to keep occupancy rates averaging over 9%, which is high compared to other cities in the Asia-Pacific region (Figure 4). New supply to the market may be either from newly constructed buildings or from older buildings which have been renovated and refurbished, and this helps to maintain competition between suppliers, which occurs on the state of building services and management, the technology available in the building, and the building s security and safety. Office buildings which are easily accessible by mass-transit systems, are well managed and which enforce strict security are in high demand, particularly grade A buildings in the CBD (see page 8 for the criteria for judging building grades.) Office buildings in the BMR are of two types. 1 Single ownership: The majority of these are rented high-rise buildings which are managed by the developer or by a specialist management company. 2. Multiple ownership: These operate more like condominium buildings, with spaces sold to separate customers. These customers will have access to shared areas and will form a committee to jointly manage the property. Most rental agreements are for 3-year periods. This benefits renters (since moving a business every year would incur excessive renovation and decoration costs) and landlords (since it assures them of continued revenue streams). When rental agreements are made for longer than this 3-year period, these need to be registered at the land office and a registration fee and stamp duty (of 1.1% of the total rental value) must be paid. Typically, rental contracts will be split into 2 or 3 smaller agreements to reduce the property taxes paid by the building s owner. Around 6% of the total rental fee will be for services and the rental of equipment, with the remainder being for the actual ground rent so these agreements would therefore usually be (i) a rental contract which specifies the fee for ground rent, set at a price per square meter per month and (ii) a contract which details charges for the provision of services, including electricity, air-conditioning, telephone, car parking, management, and so on. The majority of companies operating in office rental in the BMR are large property developers. TCC Group is the most important developer of office buildings, owning.5 million sq.m. of office space, or 6% of the total market. Its projects include, FYI Center, Cyberworld, Park Venture, Goldenland, Athenee Tower, 28 Wireless Road, Sathorn Square, Empire Tower, and Nation Tower. City Figure 3: Asia-Pacific Prime Office Rental Index Submarket (s) 3 month% change (Q4 -Q1 217) Forcast next 12 months Bangkok CBD 3.1% Increase Seoul CBD, GBD, YBD 2.9% Increase Hong Kong Central 2.5% Increase Brisbane CBD 2.3% Increase Guangzhou CBD 2.2% Increase Perth CBD 1.9% Decrease Sydney CBD 1.4% Increase Melbourne CBD 1.3% Increase Jakarta CBD.5% Decrease Taipei Downtown.2% Same Phnom Penh City Centre.% Same Shanghai Puxi, Pudong.% Same Bengaluru CBD.% Increase Mumbai BKC.% Increase New Delhi Connaught Place.% Same Kuala lumpu City Centre -.8% Decrease Beijing Various -.8% Decrease Singapore Raffles Place, Marina Bay -.9% Same Manila Various -1.1% Increase Tokyo Central 5 Wards -1.1% Decrease Source: Knight Frank Ahmedabad Kolkata Chengdu Delhi-NCR Jakata Kuala lumpur Hanai Mumbai Guangzhou Shenzhen Pune Hydarabad Chennai Bengaluru Bangkok Bangkok - CBD Ho Chi Minh City Manila Figure 4: Occupancy Rate (as of Q4 ) Source: Cushman & Wakefield, compiled by Emerging Market Average 81.1% % 2

3 Thailand Industry Outlook Office Building in BMR Situation Prior to the 1997 crisis, the Thai economy experienced rapid growth, and this included growth in the office property sector such that by the time of the crisis, there was a total supply of some 6 million sq.m. of office space. Following the crash, in the years 2-25, the supply of new office space was low, running to an average of only 5, sq.m. per year, although in some years there was no new supply at all. In 26, investment in new developments began to pick up again, driven in part by extensions to the MRT and between 26 and 29, new supply averaged 2, sq.m. annually. However, the subprime crisis helped to force another cutback in new supply and so over the period between 2 and, the total amount of new office space coming onto the market totaled only 1.55 million sq.m. (or 91, sq.m. per year), resulting in a total area of office space of 8.64 million sq.m. at the end of (Figure 5). Figure 5: Existing and New Supply million sq.m. 9. Exiting supply New supply The net take-up of office rentals over the past 5 years (211-) has averaged an annual rate of 2, sq.m. This represents an increase of 2.5% per annum, growth which is supported by Thai and foreign companies, and by, total demand for office rentals ran to 7.9 million sq.m., an increase of 2.3% YoY (Figure 6). Over the same period, the supply of new units ran at an average yearly total of 1, sq.m. (Figure 7) and this has helped to maintain occupancy rates, which have increased steadily, stabilizing at over 9% for the past 5 years million sq.m. Figure 6: Total Take-up In, 139, sq.m. of new office space became available. This included projects such as the Metropolis, FYI Center, Rungrojthanakul 4, Osotspa, Thai Life Insurance and G Tower (South) towers. For the year, the occupancy rate increased to 92.3% (Figure 8) as demand for office rentals continued to be strong. As for pre-leasing, which began in 215, the CBRE reports that 6% of the FYI Center was let before construction was completed and this year, M Tower was 1% let a full year before work was finished. It is expected that, given the limited possibilities for expanding office supply, and especially so of grade A buildings in the CBD, this trend will continue Figure 7: New Supply and Net Take-up Figure 8: Occupancy Rate thousand sq.m. New supply Net take-up % (5) 3

4 Thailand Industry Outlook Office Building in BMR Rents in the BMR have also risen over the preceding 5 years, going up by an average of 7% per year (Figure 9 and 1) and in, these increased in all areas and for all grades of building by 5-9%. These increases have been caused by the expanding service sector, especially of both foreign and domestic IT and e-commerce businesses, which are seeing their business grow and naturally this is pushing up rents, especially for grade A properties both in and outside the CBD, which are in limited supply. Rents for grade A space now average THB846 per sq.m. per month (up 7.7% YoY), while those for grade B properties are up 5.5% YoY and are currently THB657 per sq.m. per month (Figure 1). Although, in the last quarter of, rents overall for office space in the BMR rose and now run to THB953 per sq.m. per month for grade A space in the CBD (an increase of 6.2% YoY), office rents are still low compared to other cities in the Asia-Pacific region. Beijing, Tokyo and Hong Kong are currently the most expensive of these, with office rents in these three cities averaging THB3,34-3,558 per sq.m. per month (Figure 11). Figure 9: Average Rental Rates by Area Figure 11: Asia Pacific s Grade A Average Office Rents, Q4 THB/ sq.m./month All CBD Non CBD Figure 1: Average Rents for Office Space in BMR Year CBD Non CBD Average Grade A Grade B Grade A Grade B Grade A Grade B THB/sq.m THB/sq.m THB/sq.m THB/sq.m THB/sq.m THB/sq.m Beijing Tokyo Hong Kong Shanghai Singapore New Delhi - CBD Mumbai - BKC Seoul - CBD Shenzhen Seoul - Gangnam Seoul - Yeouido Mumbai - Nariman Ho Chi Minh City Taipei Sydney - CBD Guangzhou Hanai Jakata - CBD Bangalore - CBD New Delhi - Gurgaon Bangkok - CBD - Auckland - CBD Brisbane - CBD Melbourne - CBD Perth - CBD Canberra - CBD Adelaide - CBD Wellington - CBD , ,334 1,334 1,334 1,239 1,779 1,715 1,557 1,557 1,557 2,224 2,1 2,541 2,414 3,34 3,34 3, THB/sq.m./month 4

5 BOI-Plus 26 New BOI Current BOI 29 Thailand Industry Outlook Office Building in BMR 21 Singapore Myanmar 213 Vietnam Indonesia Malaysia 217F Laos 218F Cambodia 219F Philippines Industry Outlook Demand for office space in the BMR continues to grow, while the supply of new buildings coming to market over the next three years will remain rather limited. This will help to maintain high occupancy levels and the upward trend in rents. In addition, a recovering economy and government spending on infrastructure is strengthening investor confidence and this is feeding into investment in business projects, which will require offices in the coming years. This demand is coming from both domestic businesses and from those from other countries which are opening branches in Thailand, as is particularly the case with technology companies, which are increasingly starting operations in Thailand (source: CBRE). These developments will all help occupancy rates remain high and stable, and even if a number of new developments come on stream in the next two to three years, it is likely that preleasing agreements will be made for these before construction is complete. Within the BMR, a number of large office developments (with a total floorage of 48, sq.m.) are expected to become available for occupancy over the coming 1-3 years. These include G Tower (North), Gaysorn Tower 2, Cosmo Office Park, the Singha Complex, and Samyan Mitrtown. These developments may reduce the overall occupancy rate very slightly, but this is still expected to remain over 9%. Rents, meanwhile, are still forecast to rise, though at a lower rate. Over the long-run, competition will tend to strengthen in this sector as a consequence of the commencement of a number of mixed-use 4/ developments, which will increase supply. The CBRE estimates that by 225, the floor space of completed large mixed-use projects, which include a mix of office space, hotels, serviced apartments, condominiums, and retail units, will total 1 million sq.m. and this major expansion in the supply of office units will significantly increase competition over the next 7-8 years. Nevertheless, the office rental market remains more attractive in Thailand than in other ASEAN nations due to: (i) Thailand s central location in the region, connecting trade and investment; (ii) comparatively low rents; (iii) government incentives to attract investment, including tax incentives for companies establishing or expanding regional operating headquarters (ROHs), private investment 5/ showed a sign of improvement in, evidenced by 1,521 application submitted projects (+54.6% YoY) amounting to THB574bn (+189.9% YoY) (Figure 13), and (iv) a further exemption of 8-13 years under amendments to the Investment Promotion Act, and 15 years exemption under the law to improve competitiveness for 1 targeted industries (Figure 14). These incentives would help make Thailand more attractive in the eyes of investors to do business in Thailand, compared to other countries in ASEAN. 4/ Mixed-use real estate combines both residential and commercial uses (retail centers, office space, etc.) in a single project. 5/ Most of those were investments in software, automotive and public utilities sectors covering large scale projects generating numerous employments. million sq.m. Forecast % Figure 12: Office Buildings in BMR Accumulated stock (LHS) Occupancy rate (RHS), forecast by projects 3,5 3, 2,5 2, 1,5 1, 5 Source: BOI BOI Plus 15 Space occupied (LHS) Figure 14: Tax Incentives in ASEAN Countries Thailand has the most generous tax incentives in the ASEAN region New BOI 5 13 Thailand Figure 13: Net Applications Submitted Current BOI Maximum tax incentives (years) 15 Source: Local Press, Application Submitted Projects (LH) Application Submitted Value (RH) % tax reduction Tax exemption THB, bn 2,5 2, 1,5 1, 5 6 5

6 Thailand Industry Outlook Office Building in BMR Figure 15: New Supply F Future Office Projects to be completed, F Building Location Area Grade Net Lettable Area (SQ.M) Completion Date Construction Status 217F G Tower (North Tower) Ratchadapisek/ Rama IX Non CBD A 3, Q1 217 Completed Bhiraj Tower at BITEC Bangna-Trad Non CBD A 32, Q1 217 Completed M Tower Sukhumvit 62 Non CBD B 12, Q1 217 Completed SC Tower Phaholyothin 8 Non CBD A 11, Q1 217 Completed Thairath Office Building Vibhavadi-Rangsit Non CBD B 12, Q2 217 Under Construction Pearl Bangkok Phaholyothin 5 Non CBD A 3, Q2 217 Under Construction Gayson Tower Ratchaprasong CBD A 3, Q2 217 Under Construction Cosmo Office Park Muang Thong Thani Non CBD B 6, Q2 217 Under Construction Bhiraj Tower at Sathorn Surasak CBD B 3,5 Q4 217 Under Construction Ladprao Hills Ladprao Intersection Non CBD B 6, Q4 217 Under Construction Total 226, F Bank of Ayudhya (Re-development) Wireless/ Ploenchit CBD A 25, Q2 218 Under Construction MS Siam Tower Rama III Non CBD B 37, Q2 218 Under Construction Summer Hill Sukhumvit/ Rama IV Non CBD B 5, Q2 218 Under Construction Toyota Buzz Vibhavadi-Rangsit 11 Non CBD B 12, Q4 218 Under Construction Singha Complex Petchaburi/ Asoke CBD A 56, Q4 219 Under Construction Ari Hills Phaholyothin 1 Non CBD B 1,8 Q4 218 Under Construction T1 Office Building Sukhumvit 4 Non CBD B 22, Q4 218 Under Construction Total 167, F Samyan Mitrtown CBD A 5, Q2 219 Under Construction Whizdom 11 Sukhumvit 11/1 Non CBD A 3, Q2 219 Under Construction Chia Tai Head Office Sukhumvit 6 Non CBD B 1, Q1 219 Piling Total 9, 219 Grand total 484,3 6

7 Thailand Industry Outlook Office Building in BMR s view Over the next three years, demand for office space in the BMR will remain high, while the total area of new office floor space coming to market will remain limited and this will help to maintain high occupancy rates (>9%) and increasing rents. Developers of rented office space in prime areas, especially in the case of grade A properties, will benefit from a strongly positive outlook. New entrants to the sector are restricted by the high capital costs and the lack of land for development in prime areas, which commands a high price. Because of this, the market is dominated by established developers who draw advantage from their financial position and their having access to land with high potential. For these reasons, new supply will remain limited and occupancy rates and rents will be higher than elsewhere. Developers in outer Bangkok and the wider BMR zone are mostly mid-to large-sized operators with differing investment strategies, including investing in small office units, developments undertaken for personal business use but parts of which are let to other companies, and commercial projects for letting to other businesses, which will expand along new mass-transit lines. In addition, the availability of land for development in outer areas will allow new developers to enter the market and thus to increase competition. 7

8 Thailand Industry Outlook Office Building in BMR Figure 16: Bangkok Office Map Figure 17: CBD Office Map CBD consists of three maim locations including Silom/ Sathorn, Central Lumpini and Early Sukhumvit Silom/ Sathorn Central Lumpini Early Sukhumvit Other CBD Areas defined as the area incorporating Silom, Sathorn, Surawong, Si Phraya, Rama IV, Charoenkrung Road, and the sois in between. defined as the area incorporating Sarasin, Wireless, Petchburi, Ratchadamri Road, and the sois in between. defined as the area incorporating Sukhumvit Road from Soi 1 to Sukhumvit 41, Asoke road, and the sois in between. defined as the area incorporating Phayathai, Sri Ayudhya, Rangnam, Rama I, Rama 4/ Klong Toei, and Petchaburi/Pratunam Non CBD consists of seven main locations including Ratchada North, Inner Northern corridor, Outer Northern Corridor, Late Sukhumvit, Bangna-Trad, East Bangkok, and City South. Ratchada North Inner Northern Corridor Outer Northern Corridor Late Sukhumvit Bangna-Trad East Bangkok City South defined as the area incorporating Rama IX, Ratchadapisek Road from Rama IX Road to Lad Prao Road, and the sois in between. defined as the area incorporating Phaholyothin and Vibhavadi-Rangsit south of Ngamwongwan road, Bangsue, Rama VI, and the sois in between. defined as the area incorporating Phaholyothin and Vibhavadi-Rangsit north of Ngamwongwan road, Chaeng Wattana, and the sois in between. defined as the area incorporating Sukhumvit Road from Soi 41 to Sukhumvit 15, Petchaburi Road, Rama IV Road and the sois in between. defined as the area incorporating Bangna-Trad road from km 1 to km 12 and the sois in between. defined as the area incorporating Srinakarin, Pattanakarn, Ramkhamhaeng Road, and the sois in between. defined as the area incorporating Rama III, Narathiwas-Ratchanakarin, Chan, Nanglinchee, Na Ranong Road, and the sois in between. Classification of Officer: (Source CBRE) CB Richard Ellis defines grade A office building as having the following characteristics : A floor plate with a regular shape, and without structural encumbrances, which can be easily subdivided. An air-conditioning system with a central chiller and variable air volume, rather than a constant air volume from a water-cooled system. There should be a separate 24-hour air-conditioning supply for tenants' computer rooms. Lift with low wait times. Lifts should be allocated to different floor zones. A separate service lift with its own lobbies should also be provided. The common areas, particularly the main entrance and floor lobbies, should have an impressive design and high-quality fittings and decoration. Ceiling heights inside offices should be at least 2.7 meters. The building should have professional building management. The car parking layout should have smooth and efficient entry and exit routes. Office buildings of lower quality are classified as grade B. The grading of office building is highly subjective and was performed solely for this study. 8

9 Thailand Industry Outlook Office Building in BMR KRUNGSRI RESEARCH Somprawin Manprasert, Ph.D. Phornphan Phoksuphat Head of Research Division and Chief Economist Head of Macroeconomic and Industry Research Macroeconomic Team Sarun Sunansathaporn Head of Strategic Economics Sujit Chaivichayachat Head of Forecasting and Macroprudential Economics Churailuk Pholsri Senior Economist Soison Lohsuwannakul Senior Economist (Regional Economics) Kongphop Wongkaew Economist Tanaporn Sriklay Economist Industry Team Chetchuda Chuasuwan Head of Agricultural and Industrial Sectors Taned Mahattanalai Head of Service and Real Estate Sectors Poonsuk Ninkitsaranont Senior Analyst (Healthcare, Modern Trade) Piyanuch Sathapongpakdee Senior Analyst (Industry Risk Ratings) Jumpon Kluaymai-ngarm, Ph.D. Senior Analyst (Transportation & Logistics, ICT) Narin Tunpaiboon Senior Analyst (Power Generation, Biofuel, Chemical & Plastic Products) Talublugkhana Thanadhidhasuwanna Senior Analyst (Financial Sectors) Puttachard Lunkam Analyst (Tourism Sectors, Real Estate in Upcountry) Niratsai Toomwongsa Analyst (Construction Contractor, Construction Materials) Wanna Yongpisanphob Analyst (Automobile, Electronics & Electrical Appliances, Beverages) Patchara Klinchuanchun Analyst (Real Estate in BMR) Rachot Liengchan Analyst (Oil & Gas, Petrochemicals, Industry Scenario Analysis) Intelligence Team Arpakorn Nopparattayaporn Analyst MIS and Reporting Team Suratchanee Somprasong Administrator Thamon Sernsuksakul Administrator Chirdsak Srichaiton MIS Officer Wongsagon Keawuttung MIS Officer For research subscription, contact Disclaimer This document is based on public information believed to be reliable. Nevertheless, would not affirm the accuracy and completeness of this information. The opinions expressed in this document are our own, which are not necessarily the opinions of Bank of Ayudhya. We reserve the right to change opinions or forecast without prior notice. 9