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The coming deluge

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The coming deluge

The increase in office supply will prove a greater challenge than remote working policies, with an upgrade in standards a likely necessity

The need to control costs has been more of a drag on the office market than work-from-home policies. (Photo: Varuth Hirunyatheb) The need to control costs has been more of a drag on the office market than work-from-home policies. (Photo: Varuth Hirunyatheb)

Despite being the most resilient property sector, the Bangkok office market is being challenged by economic uncertainty during and after the coronavirus pandemic, with an influx of future supply either planned or under construction.

Yupa Sathienpabayut, head of office leasing at property consultant JLL Thailand, said demand for office space in Bangkok this year has softened slightly.

“The slowdown in demand has been exacerbated by the immediate need for corporations to put a greater focus on cost control, which is more of a drag than the work-from-home trend,” she said.

Ms Yupa said leasing activity has been dominated by renewals. Most companies have put their office expansion or relocation plans on hold to avoid capital expenses and to minimise occupancy costs.

While some companies have reduced their office space because of business downsizing, others have reconfigured offices to use less space with the same number of employees.

In addition, demand for office space is decreasing even as most corporations in Bangkok wind down their remote work policies.

In the longer term, the impact from working from home on demand for office space will become more apparent when companies incorporate the fact into their core real estate strategy, Ms Yupa said.

It remains difficult to predict a shift in the space requirements of corporations that adopt permanent remote working policies.

“Most of the companies we are helping with their office space requirements have said they plan to continue working remotely for certain functions only, and to a lesser degree,” Ms Yupa said.

This means that companies may allow some employees to work outside the office a few days a week, she said. The consensus among most employers is that they still need a physical office which allows more interaction, better collaboration and more productivity from employees.

SUPPLY CHALLENGE

Ms Yupa said the large increase in supply planned for the near future will be the biggest challenge for landlords in the Bangkok office sector.

At present, more than 1.8 million square metres of new lettable office space is projected to enter the Bangkok market between now and 2026. Of this, over 632,000 sq m is planned for completion by the end of 2022.

Disregarding owner-occupied projects, there are 10 new office development projects scheduled for delivery between the second half of 2020 and the first half of 2021, with an aggregate pre-commitment rate of roughly 20%.

Given the impact of Covid-19 — delays in decision-making, limited sign-off on capital expenditure, fewer relocations — the leasing market will be soft over the next several quarters, Ms Yupa said.

The pandemic has led to higher expectations for health and safety standards in real estate. Landlords are reviewing their portfolios, focusing on enhancing the competitiveness of property through technology and wellness offerings, she said.

Examples include ventilation systems for air quality and contactless technology that lets tenants enter the building, go through security, get into a lift and reach the office without touching anything.

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CALL FOR STANDARDS

The outbreak has drawn more developers’ attention to the WELL Building Standard, a certification programme with a focus on the health and wellness of workers in commercial buildings and offices.

While these concepts could be easier for new developments, many landlords of existing buildings will find it challenging to upgrade their properties to meet these standards.

Pitiphatr Buri, executive director of commercial real estate developer Bhiraj Buri Group, said the company, which has developed both high- and low-rise office towers the past three decades, sees many challenges in the office sector this year.

“Ten years ago, one staff member used 10-15 square metres of space. Now it’s only 5-7 square metres per person,” he said. “Office requirements have changed because the needs of tenants and users have changed.”

Most tenants don’t want to relocate unless the original site is too old or worn out to renovate.

“Relocation is not easy. It carries a cost and the chance you may lose existing staff,” Mr Pitiphatr said. “Retaining existing tenants is better than seeking new ones, as we often find new tenants through word of mouth.”

He said an office renovation every 1-2 years can stimulate working efficiency.

Landlords can offer tenants one-stop services to help them expand or renovate their spaces more conveniently and quickly.

“Tenants want to decorate spaces with a pleasant design for a happy workplace to draw talented employees,” Mr Pitiphatr said. “But their pain points are budget planning and limited time. Landlords today are not just collecting rent, but they should be service providers to retain existing tenants and attract new ones.”