Nevertheless, the average occupancy rate of CBD offices rose slightly by 0.7 percentage point to 87.5 per cent in second quarter 2010 against 86.8 per cent in the previous quarter. Lease renewals were the main driver of leasing activity during the quarter, according to a survey of DTZ Thailand Office agency.

Prime office rental rates in second quarter 2010 held firm at an average of Bt648 per sq m per month for the fourth consecutive quarter. The lack of activity due to the uncertainties surrounding the political rally put a halt to potential rental increases.

Amornrat Kiatkobchai, Senior Manager of DTZ Thailand, said “There may be spill-over effects from the April-May riots that are not reflected in the market immediately. These may only be seen in the future quarters as firms reassess their operation plans prior to lease expiry and readjust their business strategies taking into account politics as an additional risk factor.”

Demand for office space will continue to stem from local firms and foreign businesses which already have an established presence in Bangkok, as new major new demand is not foreseen until the political situation improves.

Retail

The Bangkok downtown retail sector was negatively affected by the arson activities which took place during the anti-government riots in May. Prime malls were closed for nearly eight weeks resulting in losses of over billions of Baht from lost sale revenue as well as from burning and looting activities.

In the downtown zone, both average occupancy rate and rental rate remained unchanged from the previous quarter at 94.2 per cent and Bt2,290 per sq m per month.

Midtown occupancy moved upwards as tenants which were affected by the closure of major downtown malls shifted to temporary space in midtown and fringe locations, lifting average occupancy from 93.2 per cent in the first quarter to 94.3 per cent in second quarter 2010.

Midtown rents stood at Bt1,560 per sq m per month, reflecting no change on a quarter-on-quarter basis and an increase of 2.0 per cent on a year-on-year (YOY) basis.

There was no new supply in both downtown and midtown areas in the quarter. Several shopping malls in both core and fringe areas were damaged by arson activity, the most prominent being Central World where the front portion Zen was burnt down. Rebuilding work will take approximately 12-14 months. The arson activities reduced total stock in second quarter 2010 for the downtown area to approximately 965,000 sq m and to 313,000 sq m for the midtown area.

Punnee Sritunyalucksana, Associate Director of DTZ Thailand Retail, commented that consumer activity has been quick to recover after the dispersion of the rally in mid May. Businesses are slowly regaining normalcy. Tenant sentiments have not waned as they have been spontaneous in adapting to the environment which they operate. The government and private sector have been quick to provide assistance by offering space and reduced rental rates to help affected tenants. Midtown rents are also likely to increase more than downtown rents in future, as the midtown area was not affected by the riots and retailers may find this an opportune time to move to the fringe areas where space is still available and an increasing number of developments is being initiated in this part of town.

Residential: Demand for affordable concept condominiums remains upbeat

Activity in the CBD residential sector waned with the disruption from the political riots which took place during the quarter. The majority of activity during the quarter was concentrated in peripheral fringe and suburban locations near to the mass transit lines. Demand for smaller 1-2 bedroom (40-70 sq m) affordable units which are usually priced below Bt80,000 per sq m remained upbeat despite the political woes.

The property tax break which was extended for a further two months at end March 2010 was again extended for another month until end of June 2010. This is a part of government initiatives to help spur property transactions which slowed down when violence broke out during the protests. So far, a handful of investors have already taken advantage of this tax incentive and transferred land and property units. It was recently announced by the Government that this will not be extended after its expiry in June.

CBD condominium rents averaged Bt452 per sq m per month in second quarter 2010 reflecting no change on quarter.

The overall average capital value for the CBD condominium market was also stable registering no change over the quarter to stand at Bt82,740 per sq m.

“New launches within the CBD will be very selective. With the uncertain political and economic conditions, developers are more cautious in initiating new projects. More time is being taken to conduct due diligence studies prior to launching a new project. Buying activity over the next quarter will largely be dominated by domestic purchasers-both end users and speculators. Foreign investors are likely to remain off the radar particularly for luxury projects until there is more certainty in the political situation,” said Low Ming Tze, Senior Manager of DTZ Thailand Research.

SOURCE: The Nation

MBK Plc, the operator of MBK shopping centre, plans to spend 639.4 million baht next month to buy land and office buildings.

The move reflects a shift in its strategy after it decided to delay tourism-related investment plans in the aftermath of the severe political violence last month.

As well, the company plans to increase the sales proportion of its property business to 20% of total revenue over the next five years from 8% currently as part of a strategy to reduce its business risks. Its total sales are now 6 billion baht.

President Suvait Theeravachiraku said that the company received approval from MBK shareholders yesterday to buy two plots on Ratchadaphisek Road.

It will also pay 431.4 million baht to buy eight vacant plots on 6.3 rai and the right to rent 480 square metres from the State Railway of Thailand in the adjacent area.

About 208 million baht will be used to buy the 18-storey Glas Haus building on Ratchadaphisek Soi 17. Glas Haus has total space of 10,976 square metres, of which 8,223 are for rent. Currently, Thanachart Group is a tenant at the the building, which was developed under a lease contract with the SRT with about 13.8 years remaining.

If the lease contract expires, the company will have the first right to renew the contract.

For the first 6.3 rai, the company plans to develop six buildings for mid-market condominiums, with prices set at 70,000 baht per square metre. Each building will have 7-8 floors of 10,000 sq m each.

The company expects to gain a 14% internal rate of return (IRR) from the investment in the two plots.

In addition to the new land purchases, the company asked for approval from its shareholders to issue debentures worth up to 5 billion baht.

Mr Suvait said that the first lot worth 3 billion baht would be issued in July to replace existing debentures that are due to expire in the same month.

The company expects that the coupon rate would be about 3%. Thanachart Securities will be the underwriter.

Discussing the recent political violence in Bangkok, Mr Suvait said the company suffered about 118 million baht in lost sales, of which 100 million baht was from Siam Piwat, the operator of Siam Center and Siam Discovery, in which the company holds a 31% stake.

It lost an estimated 26 million baht from the hotel business and the remaining 92 million baht from its MBK shopping centre.

“We closed the Pathumwan Princess for four days,” he said.

The company closed its shopping centre for nine days and shortened its service hours. It plans to reduce rental fees by 10% this month and next to help its tenants.

“Earlier, our hotel’s occupancy rate was about 70-80%, but now it is only 20% and we don’t know when the situation will be back to normal,” Mr Suvait said.

MBK shares closed yesterday on the Stock Exchange of Thailand at 83 baht, unchanged, in trade worth 36.7 million baht.

Bangkok’s overall vacancy rate now stands at 12.37 per cent, up from 12.07 per cent in the fourth quarter 2009, with the highest vacancy rates recorded in the market’s second largest sector by size (Grade A), which is a now reporting an average vacancy rate of 14.91 per cent.

This indicates that there is a decline in demand due, the company believed, to the uncertainty created by ongoing political unrest, but the pace of this decline has been slowing.

Grade A and Grade C rents showed very minor falls from the fourth quarter 2009, standing at Bt634 and Bt349.9 per square meter respectively and even a very slight improvement in the resilient Grade B sector, which saw rents grow from Bt469.58 to Bt497 per square meter, effectively halting the decline in the overall average rental rates that we witnessed throughout 2009.

In conclusion there does seem to be an emerging trend of a deceleration in the decline of office rents and vacancy rates, which is encouraging and may even be an early indicator pointing towards a potential return to improving occupancies and rental growth, but this only possible if the service sector can enter a recovery phase.

In the immediate term, levels of new demand stemming from relocation, expansions and new start ups continues to fall as business confidence suffers from the on-going political turmoil, the research said.

SOURCE: The Nation

According to professional services firm Jones Lang LaSalle the sector witnessed a number of major capital transactions during 2009. Five office buildings were reportedly sold with a combined value of more than THB9.98 billion, and more capital transactions are likely this year, This is because a significant number of companies are putting surplus assets up for sale, while investors are show higher levels of interest in acquiring office buildings, according to company.

Two of the five transactions were concluded by property funds. CPN Retail Growth Leasehold Property Fund acquired two office towers and the retail component of Central Pinklao for THB5.68 billion, representing the largest office-related capital transaction in the Bangkok office market last year. Sala@Sathorn, a newly completed Grade A office building on Sathorn Road, was acquired by Sala@Sathorn Property Fund for THB1.65 billion. The fund was set up by Primavest, which was later taken over by Ayudhya Fund Management.

Phayathai Property Fund sold TMB Bank’s former head office premises on Phayathai Road, including a 14-storey building and two low-rise buildings. CP Plaza acquired the property for THB805 million and aims to renovate the asset before releasing space back into the market for rent. Another former bank headquarters building sold last year was located on Sathorn Road with a transacted value of slightly more than THB1 billion.

TCC Land acquired an office building on Surawongse Road for THB800 million which will house the firm’s affiliate companies.

At the beginning of 2010, Jones Lang LaSalle successfully acted on behalf of an investor to dispose a portfolio of strata title units at Serm-Mit Tower on Asoke Road with combined space of 34,000 square metres. The portfolio was transacted for THB 1.5 billion.

Longlom Bunnag, Chairman of Jones Lang LaSalle in Thailand, said: “Historically, the volume of capital transactions in the Bangkok office market was relatively low, due mainly to limited supply available for sale. In 2009 many corporations restructured their asset portfolio in response to the changing economic environment, and some decided to dispose of non-core assets. This trend is likely to continue in 2010 as there is a growing need for companies to manage the cost, efficiency and performance of the real estate they own and occupy.”

From an investment perspective, Mr. Longlom says there are a number of cash-rich Thai families looking at office buildings as alternative investments.

He said: “Office buildings are one of the low-risk investment asset types. Buildings, particularly those that are well located and well managed, generate consistent income streams. They also offer higher investment returns in a range between 5 per cent and 7 per cent, compared to bank deposits and government bonds that offer returns on investment ranging between 1 per cent and 4 per cent.”

He adds that buyers could also anticipate higher returns on investments in the near term as conditions in the market are likely to pick up in 2011, in line with the overall economic trends expected in Thailand and across Asia Pacific.

SOURCE: Property-Report

The 13th annual Global Occupancy Cost Survey 2009 found that Bangkok ranked 112th globally as measured by office costs per workstation, at US$2,580 per workstation per year, a 5% decrease from 2008. The report is a guide to total office occupancy costs in 116 business districts in 49 countries and territories. Bangkok also ranked fifth-lowest in the 2008 global survey