Demand for office buildings in Bangkok shows signs of increasing in 2013 thanks to limited supply, especially of Grade A buildings in prime locations, which are enjoying the highest rental escalations, according to Knight Frank (Thailand) Co.
The Asia-Pacific Prime Office Index rose 2% in the fourth quarter of 2012 from 0.8% in the previous quarter, according to Knight Frank Asia-Pacific.
Jakarta saw the strongest increase of 14.3%, as very tight supply was met with robust demand, demonstrating that prime office rents have doubled over the last three years in both Jakarta and Beijing.
Rents fell in eight of the 18 markets tracked, with the more open markets of Singapore, Hong Kong, Shanghai and Seoul reeling from a drop in demand from the banking and finance industries.
Vacancy rates across the region increased marginally to 11 % on the back of negative net absorption in a number of markets and new supply entering the market.
Beijing's vacancy rates increased for the first time since the fourth quarter of 2009 as the market approaches its mid-term peak.
Australia's rental levels remained steady, with sentiment in the leasing markets staying relatively subdued. Sydney, however, retains its incentive levels as their effective rents were still significantly lower than headline figures.
In India, rents remained stable in Delhi and Bangalore, while Mumbai saw a significant fourth-quarter rental increase of 4.5% as net absorption in all three markets bounced back from a subdued third quarter.
Across the region, certain sectors have remained very active over the quarter. The legal sector has seen an increase in foreign law firm activity, most notably in Singapore and Seoul, where increasing liberalisation presents expansion opportunities.
Significant new supply, cost-attentive corporations and expansion delays due to global uncertainty will continue to dampen office rents in some of the key gateway cities of Asia-Pacific.
However, as the US "kicks the can down the road" to avoid the fiscal cliff, the threat of a crisis in the eurozone recedes and Chinese growth speeds up again, Asia-Pacific corporations "are likely to gradually become more bullish in their expansion plans as the economy moves into a new cycle", says Nicholas Holt, research director for Asia-Pacific.
Marcus Burtenshaw, executive director and head of commercial agency at Knight Frank Chartered (Thailand), said the office market in Bangkok has continued to grow following the positive business sentiment index, which reflects the improvement in confidence in the economy after the severe floods.
Since the beginning of 2012, business respondents have displayed an optimistic outlook, indicating that the service sector will continue to grow.
Since the second quarter of 2011, Bangkok office occupancy rates have been improving, particularly in the Grade A sector. This rise in occupancy rates coincided closely with the general election of 2011, which marked a return to peace and relative political stability with a positive impact on business confidence.
The overall occupancy rate improved to 87.74%, an increase of 2.03 percentage points on year, confirming that office demand remains healthy and continues to favour buildings located close to mass transit stations.
Grade A buildings enjoyed the highest growth as occupancy rose by 0.45 percentage point from the previous quarter, or 5.16 percentage points from the start of 2012.
As of the fourth quarter of last year, Bangkok office supply was unchanged at 4.63 million square metres - merely a 1.88-per-cent increase on year.
While rental rates rose from landlords' adjustment to incoming demand, they are still considered stable.
The office market has become more competitive, as new buildings have entered into the market and are providing attractive options for existing tenants to consider relocating.
Bangkok office rents have risen by about 3% on year, and while growth was seen in every sector, it was the Grade A market that enjoyed the highest gains as their occupancy rates improved.
This year will see three office buildings reach completion, but they are mostly located in the non-core locations of Ratchadaphisek and Viphavadi-Rangsit roads.
As the total amount of space is also relatively low, they should be easily absorbed by current levels of demand.