APPD Market Report Article
BangkokAugust 26, 2022
Jeremy O'Sullivan, Head of Research, Thailand
Flight-to-quality becomes clear in recent completions
- Prime net absorption totalled 1,800 sqm in 2Q22. Large positive movement in the quarter came from pre-commitment in recent completions. In addition, a number of small flight-to-quality tenants upgrading from old non-prime buildings to prime buildings in the CBA was recorded. However the overall demand situation remained dim.
- Known leasing volumes in the quarter totalled 11,400 sqm, with 3,000 sqm being new lets and the remainder being relocation from older buildings in the CBA.
Vacancy compresses as recent projects fill up
- No new supply completed in 2Q22. Total CBA prime office stock stood at 1,472,800 sqm.
- Vacancy rate compressed slightly to 18.7% in 2Q22 after pre-commitments moved into recent completions.
Recent completions command premium rents
- Prime gross rents remained stable for two consecutive quarters, at THB 933 per sqm per month with a slight change of -1.6% y-o-y. A few landlords continued to offer discounts, while others kept the rents stable. Recent completions with healthy occupancy increased their rents, with some no longer offering rent-free periods.
- Capital values slightly improved by +0.3% q-o-q and +3.9% y-o-y to THB 159,366 per sqm. This was mainly owed to rising land prices and high inflation rate. Market yield slightly compressed to 5.35%, and is likely to remain flat with minimal changes in the near term.
Outlook: Rising vacancy from upcoming completions pressuring yield
- By end-2022, One City Centre plans to open, after which CBA stock should total 1.53 million sqm. Pre-leases across new and recent completions have become more solid, thus vacancy rate should reach 20.3%.
- Gross rents should remain flat, while rent-free periods in older assets are rising. This in turn should pressure net effective rents to compress by -4.6% y-o-y. With declining rents and high capital values, market yield should fall to 5.35% by end-2023.