Prime-grade Office Vacancy Rate Set to Surge Next Year!

In the heart of bustling Bangkok, a significant change is on the horizon for prime-grade office spaces. The anticipated surge in vacancy rates, set to almost double to 30% next year, is sending ripples through the city’s commercial real estate landscape. In this article, we’ll explore the reasons behind this shift, the impact on different office grades, and how landlords can adapt to emerging trends, all while providing valuable insights for tenants navigating the evolving office market.

Understanding the Surge in Vacancy Rates:

According to Michael Glancy, the country head of property consultant JLL Thailand, the surge in prime-grade office vacancy rates is primarily attributed to the impending influx of new supply. The wave of new offices, totaling 226,314 square meters in 2023 and 174,414 square meters in 2024, is expected to peak the vacancy rate at 30%, the highest since 1997. Glancy notes that the current rate of 18.8% is set to jump significantly, remaining around 30% in 2025-26.

The Flight-to-Quality Trend:

Glancy emphasizes a clear trend in the market—the flight to quality. With the majority of tenants occupying spaces for over 12 years, there is a discernible preference for newer, high-quality office spaces. The appeal of older buildings is dwindling, and they risk losing tenants if they fail to upgrade their spaces. This trend is reshaping the dynamics of the Bangkok office market.

Impact on Different Office Grades:

Nichakamol Horungruang, research and consulting office lead at JLL, sheds light on how the surge will impact different office grades. Grade C office spaces are likely to face the most significant impact due to their physical limitations—small size, outdated specifications, lower floor-to-ceiling height, and bulky columns. The domino effect is expected, with tenants from existing grade A moving to new grade A, those at grade B shifting to existing grade A, and grade C tenants relocating to grade B. The message is clear: existing supply must undergo renovation or upgrades to retain tenants.

Adapting to Emerging Trends:

To navigate the evolving landscape, office landlords are urged to consider new trends, especially in the post-pandemic era. One notable trend is the shift to hybrid work. JLL’s research indicates that over half of tenants are likely to adopt a remote working policy for all employees by 2025. Talents now seek flexibility in their work arrangements, including the option to work from anywhere. This shift implies that many firms may not require the same office size they did before the pandemic, prompting a reassessment of office space needs.

The Role of Landlords in the Changing Landscape:

As the commercial real estate landscape transforms, landlords play a crucial role in adapting to these changes. Upgrading existing spaces, embracing flexible working arrangements, and staying attuned to tenant preferences are vital steps in retaining and attracting tenants. The focus should not only be on square footage but on providing an environment that aligns with the evolving needs and preferences of modern businesses.

Navigating the New Normal in Bangkok’s Office Space Arena

As Bangkok’s prime-grade office vacancy rates surge, the landscape is evolving, presenting challenges and opportunities for both landlords and tenants. By understanding the driving forces behind the shift, anticipating the impact on different office grades, and adapting to emerging trends, stakeholders can navigate the new normal and create an office environment that meets the evolving needs of the workforce. The surge in vacancy rates is not just a challenge; it’s an invitation to redefine and reimagine the future of office spaces in Bangkok.