Colliers: Office space seeing shorter leases

Bangkok’s office sector is witnessing a rising trend of shorter-term lease renewals as tenants await new towers that will be completed over the next two years, according to property consultant Colliers International Thailand.

Phattarachai Taweewong, senior manager in the Colliers research department, said more than half of tenants that rented office space for more than six years renewed their contracts for only one year.

“Tenants are waiting on the new offices after learning there would be new office towers being completed in the next few years,” he said. “This began in the second half of last year and continued into the first half this year.”

Typically, office tenants will contract leases for at least three years to justify decorating expenses. After three years, the rental rate will rise in line with the market rate, which is usually no more than 5% per year.

To be worth investing in decorating rental spaces, tenants will rent for at least six years, Mr Phattarachai said.

According to Colliers’ market research, three new office projects in the first half added a combined lettable area of 47,720 square metres. This amount boosted office supply to total 8.618 million sq m.

In the second half this year, a total lettable area of 141,692 sq m from five buildings will enter the market. All of them are located in non-central business district (CBD) areas.

They comprise Singha Complex, developed by SET-listed Singha Estate Plc on Asok and Phetchaburi roads with a lettable area of 55,500 sq m. The project has a pre-lease occupancy of 75% with an asking rent of 1,000-1,400 baht per sq m per month.

On Rama III Road, 38-storey MS Siam Tower will be completed in the third quarter this year with a lettable area of 40,000 sq m for 650 baht per sq m per month.

The project is a joint venture by Mahatun Plaza and Srisiam Capital, focusing on tenants from the industrial sector.

There will be also 34-storey T1 Tower near Sukhumvit Soi 40 with 22,500 sq m, developed by Tan Eng Asset and owned by Tan Passakornnatee. The project has a pre-lease occupancy of 92% with a monthly rent rate of 1,000 baht per sq m.

Other two projects will be Thai-China Tower on Bang Na-Trat KM 2 Road, with 18,600 sq m, and Summer Hub on Sukhumvit Soi 71, with 5,100 sq m.

The Bang Na site is a renovation of a suspended building by Chinese investment group Tai Hung Tai Group, and the other by developer Boutique Corp.

After 2019, the majority of new office supply will be in the CBD with a combined lettable area of around 1.18 million sq m.

Mr Phattarachai said most of the new office towers are located in a better location, have more attractive facilities and offer a discount for the pre-lease contract. They also have enough space for tenants at older towers that want additional space for expansion.

“To retain existing tenants, office landlords should invest in renovating the property, add new facilities and offer interesting options like a cap on rent increases of 10% for three years instead of the usual 15%,” Mr Phattarachai said.

Office demand during 2018-20 will be 150,000-200,000 sq m per year, the same level as during 2012-17.

In the second quarter of 2018, average occupancy rate was 93%, up from 92% in the first quarter and the highest in the past decade.

Average monthly rent for Grade A and B in the CBD was 970 and 780 baht per sq m. The rates are 720 and 630 baht on Phahon Yothin Road and 800 and 620 baht on Ratchadaphisek Road.

Article source: https://property.bangkokpost.com/news/1525402/colliers-office-space-seeing-shorter-leases

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