Following a challenging 2023, we expect 2024 to be an exciting year for Thailand’s commercial real estate sector. The anticipated influx of prime-grade office and retail supply will certainly be a key focus for developers, investors and occupiers alike. With the completion of seven new office projects by the end of 2024, the total prime office supply in Bangkok’s Central Business Area (CBA) is projected to reach a total of 412,600 sqm (NLA), which is equivalent to 27.9% of the existing prime stock and marks the highest net annual supply increase since 1999. This poses significant challenges towards the office market, especially within the CBA submarket. Furthermore, the prime office pipeline is expected to contribute approximately 1.5 million sqm  to the CBA submarket between now and end-2028, effectively doubling the existing prime office stock.

Taking into account an evident “flight-to-quality” movement, older commercial buildings are under pressure to sustain a stable rental level and healthy occupancy rate. To overcome this, more renovation and enhancement efforts are seen across the existing assets, not to mention pursuing ESG certifications, in order to stay competitive against brand-new projects.

JLL research suggests that office buildings with less than 10 years commanded a substantial rental premium, averaging 22.5% higher than the CBA-wide average level as of Q3’23. Meanwhile, assets older than 10 years or more that have undergone major renovation continued to remain competitive and commanded a premium rate slightly above the average level. In contrast, aged properties older than 10 years, without significant renovations, recorded a discount of 8.8% below the average level, with the gap expected to widen in the coming years. This shows that the first-mover advantage is beginning to materialise for the office market.

Figure 1: Bangkok CBA – Average gross rents, by age group

Source: JLL Research, Q3’23

Meanwhile, the prime-grade retail market is also experiencing a similar influx in supply, with more than 215,000 sqm (NLA) of space expected to enter the market in 2024. In addition, at least nine projects with a total supply of 534,000 sqm (NLA) are slated for completion through 2027, with most of these already under construction. In response to this supply pipeline, we have seen many shopping centres – especially those in decentralised locations where vacancy is relatively high – undergoing renovation and reshuffling the tenant mix. This is essentially being done to equip these centres with lifestyle-oriented retail experience to compete head-to-head with forthcoming high-quality supply.

That said, the influx of new ‘state-of-the-art’ commercial supply will undoubtedly intensify competition within the market, driving a number of players out of business. In anticipation of a massive supply of influx, renovation and asset enhancements are deemed as a short-to-medium term solution for owners of ageing assets. Conversion into alternative assets could be another viable option. Yet, there is still uncertainty regarding the long-term future of these aged commercial assets once the property market further corrects.

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