Mass transit changes the office equation

Mass transit changes the office equation

Back-office work shifts to cheaper sites

NINA SUEBSUKCHAROEN

Bangkok's expanding skytrain and underground systems are significantly changing office rental patterns, according to Greg White, the commercial director of the property firm Colliers International.

Companies are eager to be near stations to improve their images and head off car parking problems, but significantly, they are also considering splitting front- and back-office operations and moving the latter to cheaper sites.

Steep rental increases in any city will motivate executives to move some people to the outskirts or even a different city to trim costs, he says. "If you look at any business balance sheet, very often two of their highest costs are going to be office accommodation and staffing."

With oil prices soaring and environmental awareness growing, Mr White noted that companies are also eager to show social responsibility by reducing the number of cars their businesses use, something that can be easily accomplished by being near train stations.

Colliers International's latest Knowledge Report accurately measured business sentiment in 2007 by estimating that the Bangkok office market absorption rate at 167,000 square metres - almost half of what it was at the peak of the market a few years ago.

While Colliers expects consumer and business sentiment to improve post-election, it qualified this by stating that the domestic political climate as well as weakening international markets remain risks that can limit the growth potential. For this reason it expects the absorption rate in 2008 to be limited to an increase of around 10-15% on 2007.

White: Firms want to reduce car use

Mr White noted that the Bangkok office supply pattern seems to track the direction of public transport. Colliers has identified eight zones, in which four feature good public transport: 1: inner CBD; 2: outer CBD; 3: eastern areas covering New Phetchaburi, Rama IX, Sukhumvit, Rama IV and Na Ranong; 7: the northern corridor covering Chaeng Watthana, Phahon Yothin, Ratchadaphisek, Asok and Ratchawithi.

Zone 1 has the most office space, totalling 3,073,996 square metres. Zone 2 has only 361,618 sq m because it is a very small area. Zone 7's total is almost 1.9 million sq m with the space in the other zones being much smaller. Zone 8, where Bang Na-Trat lies, has a lot of supply totalling 598,907 sq m but there are no new developments. Most new building is in zones 1, 2 and 7.

Overall the vacancy rate has been flat for the last few years staying in the region of 12% to 13.5%. However, in the CBD it was 8-9% because of lack of new supply but there are new developments in the pipeline for the next two years that will change the scenario. Mr White notes vacancy rates for prime space in Singapore and Hong Kong are only 2-3%.

Currently grade A offices in the CBD are fetching 700 to 745 baht per square metre per month, with grade B in the CBD and non-CBD grade A costing 500 to 550 baht. Colliers expects rents to go up by 2-4% in line with demand.

Promising new buildings include Athe'nee' Tower on Wireless Road which is just finishing off and has total of 45,000 sq m; Cyber World Tower on Ratchadaphisek Road with 61,000 sq m; East Water Tower on Vibhavadi Rangsit Road with 12,800 sq m; Chamjuree Square on Rama IV Road with 89,000 sq m; The Trendy in Sukhumvit Soi 13 with 20,000 sq m; Interchange 21 at Asoke junction with 45,000 sq m; Asia Center on Sathorn with 31,000 sq m; Sathorn Square by Golden Land with 70,000 sq m; Energy Complex on Phahon Yothin with 124,000 sq m and Pakin on Ratchadaphisek with 30,000 sq m.

"Athe'nee' Tower is going to be very interesting because it is going to be a very good high-end grade A building," says Mr White. "The Pakin building is going to be very exciting on Ratchadaphisek, it's a low rise with large floor plates that people like to have. ... I am sure Asia Center is going to be very interesting for financial companies - the design and floor plate are very, very good. Interchange 21 is going to be very interesting because it's on the BTS and MRT. ... Sathorn Square is another good building that is going to be in the middle of the CBD, interesting for multinational corporates and large companies, it's 70,000 sq m, there is a lot of different variations there ... Cyber World Tower on Ratchadaphisek is aimed at that sort of a market - internet, WiFi business, that will be out there."

Colliers also conducted an extensive tenant survey of key concerns about existing space and factors influencing new office selection (see chart).

Main concerns with current space include future increases in rental rates; availability of car parking spaces; lease terms and conditions; air-conditioning; access to public transport; expansion space availability; and retail facilities.

Mr White notes that air-conditioning is a big concern in older buildings that lack "intelligent" technology so temperatures are not consistent and must be adjusted manually by management.

Noteworthy is the fact that car parking drops from second of 15 main concerns with current buildings to number six in new office buildings. "Car parking space is an issue but by being near the BTS and MRT it changes that, very much so," says Mr White.