APPD Market Report Article
BangkokMay 31, 2022
Demand in recent completions drives overall market
- Prime net absorption totalled 37,800 sqm in 1Q22. Large positive movement in the quarter came from pre-commitment tenants moving into O-NES Tower. Large-size corporates continued to downsize, while pre-committed tenants have not yet moved into new completions.
- Known leasing volumes in the quarter recovered to 26,000 sqm, with half consisting of new lettings, in-situ expansions and relocations. The remaining were renewals.
Two new prime projects opened with healthy pre-leasing rates
- New completions in 1Q22 totalled 46,000 sqm, which included Vanissa and 140 Wireless. Both projects are located in Central Bangkok, and they secured approximately 40% pre-commitment. Total prime stock increased to 1,472,800 sqm.
- The CBA prime vacancy rate remained stable in 1Q22 from the previous quarter, at 18.8%. We expect a slight compression in the next quarter when new and recent completions fill up.
Rising capital values amidst flat rents
- Prime gross rents remained stable at THB 932 per sqm per month, with minimal changes q-o-q and y-o-y. Landlords were unlikely to offer significant discounts, while new completions are offering gross rents similar to the market average. Net effective rents declined by -3.0% y-o-y to THB 715 per sqm per month due to high operation costs and a change in property tax.
- Capital value growth picked up by 4.1% y-o-y. This was largely the result of higher construction costs, mainly steel products which are widely used in office construction and logistics costs. Market yield compressed to 5.4%.
Outlook: High competition should compress yields to record low
- By end-2022, One City Centre (55,700 sqm) plans to open. CBA stock should total 1.53 million sqm. Pre-leases across new and recent completions became more solid, yet tenants should continue moving out of older prime buildings. Thus, vacancy rate should reach 20.3%.
- We expect minimal changes in gross rents; however, the increase in outgoings should pressure net effective rents to compress further. Declining rents and high capital values should in turn compress market yield to 5.35%.