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Thailand’s commercial property market is both unique and complex, buffeted by many factors that are not always found in other countries.

The further relaxation of the FBA in regard to opening up certain businesses for foreign investment, along with the scrapping of the 30 per cent reserve rule have both been seen as very positive steps for the market as a whole. Should these moves open the way for further confidence boosting measures, it seems likely that Thailand will see an influx of foreign companies looking to set up in the Kingdom.

However, in the commercial property market, and particularly in the office market, a wait and see attitude still prevails.

Robert Collins, Managing Director of Savills (Thailand), told Property Report Thailand.
“Commercial property has underperformed during the last five years both in comparison to the residential market and in comparison to forecasts. This has lead to a decline of supply during that period in favour of residential projects.” He pointed out that a vast majority of foreign companies rent their offices.

“Vacancy rates for office space were 44 per cent in 1998. That figure has now dropped to just 5 per cent, however there is little new demand. In the short to medium term we expect that the office market will be flat but stable, however, given the tight supply, it won’t take much to suddenly see sharp increases” he added.

This tipping point could be on the way sooner rather than later. According to Greg Lange, Managing Director of Sunbelt Asia there has been a “quantum leap” in the numbers of BOI applications which could stir demand in the commercial property market.

“We have seen more applications in the last year than in the previous five years combined.” he said.

Evidence of a tightening in the market is starting to show. Even older buildings in well located areas such as Silom are enjoying good occupancy levels.

“There are many office buildings which are between 20 and 40 years old which provide well located, modestly priced office solutions. These properties are participating well in the market currently and enjoy a good stable base of tenants” Collins said.

The retail landscape forms another complex microcosm of the commercial property market in the Kingdom. The market is driven by many factors, with pockets of strengths and weaknesses clearly apparent. Much depends on the goods being sold and proximity of retailers to their target customers. There is no mistaking though, that overall, rents are rising.

“For the first time in many years we are starting to see vacancies in prime locations such as the Upper Sukhumvit Road area. This reflects staunch property prices rises and correspondingly higher rent demands both of which have lead to a migration on the part of some owners and tenants to less expensive areas.” Lange said.

Collins pointed out retailers serving the tourist markets should enjoy a generally stable future as the tourist sector remained strong.

He further commented. “Large, up-market retail centres such as Siam Paragon and The Emporium continue to perform well with no vacancies likely to emerge. We don’t expect too see many more malls such as these coming on line in the near future and so this will likely ensure that existing centres remain buoyant.”

As regards the industrial sector, there are some businesses which are doing well such as auto makers. However companies such as apparel and shoe manufacturers are finding it quite difficult to keep their manufacturing bases competitive compared to basing in other countries, especially considering the relatively higher cost of labour and the stronger baht.

Yet things are changing. Whilst China did offer much cheaper wages, inflation and wage demands there are now rising at an alarming rate, leading many companies to look back at Thailand. The Kingdom’s reputation as an economically viable manufacturing base means that it is likely to be very much on the radars of multinational companies who are seeking to cut costs.

Collins commented “Manufacturing is migrating back towards the kingdom from countries such as China and Vietnam, mainly due to the fact that wages in the kingdom have remained stable. As such demand for industrial property will likely be well supported.”

The supply of commercial property in the industrial sector is flexible. This is mainly due to the fact that the restrictions that are in place in city centre locations simply do not present themselves in those areas that are earmarked for industrial development.

“There are land banks already in place that will allow industrial parks to expand relatively easily. However, the outlook for stronger demand going forward still makes this sector a good investment for developers.” he added

One of the less ‘trumpeted’ trends in Thailand’s commercial real estate space is the drive towards energy efficiency. Whilst there is certainly pressure for building operators to voluntarily limit their power consumption, The Alternative Energies and Conservation Department has proposed mandatory standards for all new commercial buildings which have a floor space of over 2000m2. The proposals, if adopted, will become part of future building codes, ensuring that developers invest properly in energy efficiency devices such as natural ventilation systems, low power lighting and efficient air conditioners.

Lange commented “With the cost of electricity increasing, prospective tenants and buyers alike are definitely becoming more interested in the running costs of properties. Considerations such as where the sun enters the building and how easily shades or other energy saving devices can be installed are high on their list.”

The drive to energy efficiency comes at a time when energy prices are reaching record highs. A building that is economical to run translates into real value for the tenant or owner, but it is certainly the case that many buildings in Thailand are far behind their counterparts in other countries when it comes to cutting down on energy use.

Even simple technologies such as double glazing are seldom seen in the Kingdom. The high expense of installing energy efficient fittings still remains a deterrent, but it is hoped that the Alternative Energies and Conservation Department’s initiative will provide a good start point towards making Thailand’s commercial property more green.

 

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