ROOM TO GROW

Thailand 2017 | CONSTRUCTION & REAL ESTATE | FOCUS: OFFICE SPACE

Demand for office space remains high in Thailand, and especially in Bangkok; however, competition from the AEC as well as a lack of supply has forced the government into action, which has established a number of targets and goals for the sector.

Growing demand in Bangkok's office space and commercial property is helping to strengthen Thailand's real estate sector at a time when regional competition is fiercer than ever. The recent integration of Southeast Asian nations into the single market ASEAN Economic Community (AEC) has encouraged companies, local and multinationals alike, to rethink their regional presence, if not entire production chains. As such, the Thai government has pushed through various incentives—from Special Economic Zones (SEZs) to nationwide infrastructure upgrades—in a bid to retain the country's competitive advantage as the region's prime investment destination.

One such "pull" factor devised by the Thai government has been to outperform regional rivals in the World Bank's ease of doing business index, where Thailand was ranked 26th out of 189 countries in 2014. While regime change has since pulled it down to 49th in the past two years, in April 2016 the government announced it was targeting a top 20 ranking by 2018. An early knock-on effect has been that office demand in the capital is expected to remain strong, signaling investor confidence in the government's schemes. According to property consultancy Colliers International Thailand, demand for Bangkok's office space in 2015 exceeded 160,000sqm in total. Conversely, while demand for new offices in the capital is on the rise, supply is limited, both in numbers and location: throughout the peak demand in 2015, a total of 96,450sqm of office space was completed. And while this figure is set to more than double to 195,245sqm in 2016, this is still below the average annual increase of 200,000-300,000sqm, which suggests demand will continue to grow this year, according to Colliers. Moreover, less than a quarter of this fresh supply will be Grade A, or concentrated in Bangkok's central business district (CBD), with the remaining 147,150sqm built toward the outskirts of the city.
These factors have subsequently influenced two crucial occurrences: a solid rise in commercial property prices; and the natural infrastructural expansion of the capital. With the occupancy rate in the CBD already topping 93.5% at an average monthly rate of THB905 ($26) per sqm, property owners have begun raising rental prices in 2016 to THB1,000 per sqm and above. This is helping to boost an already healthy real estate sector in Thailand as companies from across the spectrum, from developers to renovators, begin to seize the moment.

Speaking to TBY, Sitthirat Watcharaporn, the General Manager of Lixil Thailand, said out of the four segments the Japanese building materials manufacturer caters to—residential, hotels, government projects, and commercial—the latter will drive the company's growth in the coming years. “With investments in infrastructure work stimulating the economy, there is a lot of potential in the commercial area; and there will be a lot more renovation projects coming up."

Similarly, the surging redevelopment of the city's less central areas is helping ease pressure away from the CBD and driving sector-wide business opportunities to previously unindustrialized pockets. In his exclusive interview with TBY, Kavin Kanjanapas, the CEO of BTS Group—which owns the urban mass-transit "spine" running through Bangkok's center, the first and only privately held track in the world—explained that the company would be doing just that by adding an extra 108km of mass transit line to the existing 36km over the next five years.