c o l l i e r s i n t e r n at i o n a l | T H AILAN D

The Knowledge Report

B a n g ko k O f f i c e M a rk e t | 2 n d Q U A RT E R | 2 0 1 0

Executive Summary
No new office supply came onto the market in Q2 2010 and only very limited supply will be
expected until Q4 2010 with the scheduled opening of Sathorn Square.

Very little relocation activity in Q2 reflecting the ongoing political impasse deterring companies
Market Indicators
from making long term plans.

Q1 2010 - Q2 2010 Occupancy rates fell by about 1% in every area including the CBD, Outer CBD and the Northern
Fringe.

New SUPPLY Rental rates remained more or less the same in the CBD for Q2, although a fall in rates was more
pronounced in the Northern Fringe. This was likely to be a correction to the steep rise in 2009.
Demand
As of June 30th, no discernable impact on the office market has come about from the ongoing
demonstrations. However if these become protracted and effect the CBD area then this could have
Rentals a negative impact over time as leasing contracts expire. Back offices or split locations could be a
future trend.
occupancy

Office Zoning

The general lack of zoning restrictions in Bangkok has led to the existence of significant office sup-
ply in a wide range of locations in the city and how the market has perceived the CBD has evolved
over the past 20 years. The original CBD was located in the Silom and Surawongse roads, home to
the vibrant gold market and other trading businesses. The development of modern office buildings
with a larger floor plate in the nineties could not be accommodated in this area and the CBD began
to take shape in the eastern section of Sathorn road. While Sukhumvit road up to Asoke is primar-
ily perceived as an entertainment and residential area, a large number of grade A buildings sprung
up in the nineties and also in the past few years. It is therefore considered as part of the CBD. As a
working definition the CBD, for the purposes of office classification, is where a significant number
of Grade A office buildings are located. As such the old CBD is considered Outer CBD as well as
Petchburi road where more grade B offices are located. Over time this structure could evolve.

www.colliers.co.th
The Knowledge Report | 2nd Quarter | 2010 | Bangkok Office Market

Zoning

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 The Knowledge Report | 2nd Quarter | 2010 | Bangkok Office Market

Historical Supply

Cumulative supply in Bangkok

Source: Colliers International Thailand Research

Remark : E = Estimated supply

The office market landscape even today is a result of a five year
boom period from 1992 to 1996 prior to the Asian Financial
Crisis. Even after the crisis, projects continued to be completed
culminating in the 140,000 sq m Empire Tower in 1999; which
remains the largest office building in the centre of Bangkok. The
following five years were a fallow period for the office market as
only a total of around 186,000 sq m was completed. It was only in
the second half of the decade did growth in supply pick up with
over four and half times more supply being added in the last five
years compared with the first five.
No new supply came to the market during the first half of 2010
however in Q4 2010 two new office buildings are scheduled to
be completed in the CBD and Outer CBD area with a total area
of around 79,000 sq m.

Additional supply for each year

Source : Colliers International Thailand Research

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The Knowledge Report | 2nd Quarter | 2010 | Bangkok Office Market

REGIONAL COMPARISON

Total stock of office both CBD/Non-CBD in selected Asia-Pacific countries

Source : Colliers International Thailand Research /Colliers International Country Offices

The diffuse nature of the Bangkok office market is highlighted by proportion of office space is located outside the CBD.
a comparison with other countries in the region. A much greater

Office space in secondary locations in South East Asia

Cebu (Philippines) 450,000 sq m of office space for BPO market

Da Nang (Vietnam) 60,000 sq m [also 2 main cities]
Surabaya (Indonesia) About 12 office buildings
Bandung (Indonesia) About 5 office buildings
Penang (Malaysia) Over 1 million sq m office space
Johor Bahru (Malaysia) Approx 560,000 sq m

Source : Colliers International Thailand Research /Colliers International Country Offices

Almost all office space is located in Bangkok itself with only a
negligible amount in the regions. Most office functions outside
of Bangkok take place in shophouses and townhouses in similar
fashion to Phnom Penh in Cambodia. This contrasts with other
Asian countries which have offices located in other parts of their
country such as Cebu in Philippines, Surabaya in Indonesia,
Penang in Malaysia and Busan in Korea. Pattaya may emerge
as a secondary office location in the future although this will be
dependent on incentives by the Board of Investment to stimulate
the service sector outside of Bangkok.

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 The Knowledge Report | 2nd Quarter | 2010 | Bangkok Office Market

OFFICE SIZE

Average size of office building according to area

Source : Colliers International Thailand Research

The Outer City West has the highest average size in Bangkok
but due to the limited number of offices in this area, one build-
ing; the Thai Farmers Bank Head Office, with over 74,000 sq m
of NLA, raises the average somewhat. The CBD comes in sec-
ond place largely due to the number of grade A office buildings
containing a large floor plate and consequently greater building
size. The smaller sizes reflected in the Outer CBD reflects the
space limitations and smaller, older buildings located in west
Silom and Surawongse. One notable feature is the smaller sizes
in the Outer City East. In many Asian cities large office buildings
are located outside the centre in order to accommodate the BPO
industries which often require a large floor plate but low rentals.
This appears not to be the case in Bangkok.

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The Knowledge Report | 2nd Quarter | 2010 | Bangkok Office Market

Supply by Ownership

Supply by ownership, Q2 2010

Source : Colliers International Thailand Research

A significant number of offices are multi-owner in what are also
referred to as office condos. Almost all of these were built pri-
or to 2000 when investors were looking to make rapid capital
gains during the boom period that preceded the economic crash
in 1997. There are some advantages of occupying multi-owner
office such as separate air conditioning systems which are cost
effective for companies operating in non-working hours. How-
ever there are disadvantages in the form of sometimes uncoordi-
nated property management and more expensive air condition-
ing systems for companies using office space predominantly in
working hours. However occupancy rates are in general higher
in multi-owner offices.

Future Supply

Future Supply By location

Source : Colliers International Thailand Research

Two office buildings are scheduled to be completed in 2010 with current supply. However Sathorn Square, scheduled to open in
one building located in the CBD area and another just outside Q4 2010, will represent the largest office tower in the CBD since
in the Outer CBD area. The total area of office space will rise by Empire Tower in 1999.
79,000 square meters representing an increase of around 1% of

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Demand - Take up

Occupancy rate by location, Q2 2010

Source : Colliers International Thailand Research

The Outer City West area still commands the highest occu- occupancy rates. The CBD occupancy rate recorded the second
pancy rate for Q2 2010, and the Southern Fringe has the lowest lowest figure.

Occupancy rate in 3 locations, 2001 - Q2 2010

Source : Colliers International Thailand Research

The occupancy rate in the CBD area dropped by approximately ings around the area closed their doors, but after the political
0.4%, while the outer CBD area fell by 0.2%. However during disturbances ended, the occupancy rate still remained the same
the protest at Rajaprasong intersection numerous office build- as the last quarter.

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The Knowledge Report | 2nd Quarter | 2010 | Bangkok Office Market

Demand drivers

Newly registered firms during January 2009 - May 2010

Source : Department of Business Development and Colliers International Thailand Research

January 2010 recorded a surge in company registrations but this was followed by a steep downturn and has remained low during the
April and May disturbances.

Business Contingency Planning

The events of April and May 2010 raised the awareness of
companies of the need to develop contingency plans in order to
reduce the disruptions resulting from disturbances either natural
or man-made. One key area regards location and the fact that
most companies operate in only one office location. Many offices
had to close their doors during the demonstrations and business
activity was severely curtailed or even suspended in many cases.
A large number of companies operated briefly from temporary
back up offices and many are now considering using a perma-
nent back up office in order to provide a speedier response. Other
options include the use of service centres or even operating from
two separate locations in which both would act as parallel back
up offices.
Each plan would represent a stimulation of demand for office
space. However each would also increase the costs of doing
business in Bangkok and such contingency planning would likely
only take place in the event of protracted disturbances which
is by no means certain. As such the increase in demand that
would result would represent a silver lining to the dark cloud of
businesses closing down and foreign enterprises fleeing the
country.

Regional operating headquarters (ROH)

The government needs to restore country’s image and attract
foreign investment after the political problem affecting the
investment climate in the country. The government approved
new tax incentives for Thai and foreign firms setting up region-
al headquarters in Thailand. Zero corporate tax rates apply to
income earned for services provided to companies outside
Thailand and 10% corporate tax rate for income from domestic
services for 15 years. Also included is a reduced personal income
tax rate of 15% for eight years for expatriates working in ROHs.
The lower personal tax rate applies only for ROHs that gener-
ate at least half of their income from services provided to firms
outside of Thailand. Although this improvement will likely lead
to some companies headquartering in Bangkok, other factors
such as poor English skills and ongoing political unrest act as a
strong deterrence. Hong Kong and Singapore look set to remain
the preeminent regional centres for the foreseeable future.

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 The Knowledge Report | 2nd Quarter | 2010 | Bangkok Office Market

Exports from Thailand on quarterly basis

Colliers International Thailand Research

Source : Bank of Thailand

Industrial growth is the main driver that powers the office
market as this leads to the need for trading, financial, legal and
insurance services amongst others to support it. After a dramatic
drop in exports starting at the end of 2008, they have started
to recover in the last three quarters. This bodes well for future
demand for office space although ongoing financial problems in
Europe and the general retrenchment of fiscal stimulus in the
majority of Thailand’ exports partners could spell many
problems, exacerbated by foreign currency weakness of the Euro
and other trading currencies.

Rental Rate

Rental rate by zone

Source : Colliers International Thailand Research

Unsurprisingly the CBD commands the highest rental rates due
to the location and the number of grade A buildings. Rents in
the Northern Fringe are considerably higher than the Outer
CBD. This could be explained by the fact that a significant num-
ber of offices are located close to both the BTS and MRT lines in
the area while most offices in the Outer CBD are located some
distance from mass transit lines. While Colliers International
Thailand have research that shows that condominium prices are
generally higher the closer they are to mass transit stations, the
same also seems to be the case for offices. Being located near a
mass transit station is preferable for both employees and business
visitors alike.

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The Knowledge Report | 2nd Quarter | 2010 | Bangkok Office Market

Rental rate by grade Q2 2010

Source : Colliers International Thailand Research

Grade A offices have greater rental rates than those of grade B. that competition between these grades is intense and tenants see
The difference between grade B and C is rather small reflecting less distinction between the two.

Historical rental rate in 3 main locations, 2001 - Q2 2010

Source : Colliers International Thailand Research

In Q2 2010, rental rates for office buildings in CBD area fell in the Northern Fringe but this was likely to be a correction after
slightly by 0.3% compared to Q4 2009. Rates fell more sharply the steep rise in the previous year.

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 The Knowledge Report | 2nd Quarter | 2010 | Bangkok Office Market

Historical rental rate by grade

Source : Colliers International Thailand Research

Rental rates of grade A office building have remained stable from favourable terms for tenants to maintain occupancy during
2007 while grade B recorded a small drop. Colliers International difficult economic times, especially for small businesses.
Thailand has noticed that some landlords have offered more

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The Knowledge Report | 2nd Quarter | 2010 | Bangkok Office Market

Forecast

Due to the three year leasing term contracts and costs of relocating office, it
remains to be seen whether the events of April and May 2010 in the CBD area
will affect occupancy in this location in the future as tenants may wish to locate to
lower profile zones. Further disruptions in Bangkok could go some way in shaping
the direction of the office market, depending on how they manifest themselves and
in which locations.

There would appear to be pent up demand for office space but remains subdued due
to the ongoing political tensions that could unleash into fresh disturbances and
violence. While this situation remains the office market will remain stagnant as
tenants hold off on strategic planning and landlords provide favourable conditions
for contract extension.

The limited amount of new supply over the past year has allowed rentals and
occupancy to remain firm in this current environment. However with the
introduction of over 70,000 sq m of office supply in the CBD for Q4 2010, this will
likely provide challenges for older grade A buildings as high profile companies are
attracted to newer office buildings. Expect landlords in the CBD to go further
in enticing tenants to renew contracts that expire over the next year.

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 The Knowledge Report | 2nd Quarter | 2010 | Bangkok Office Market

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