_Bangkok Office Property Market Q2 2022
Mr. Panya Jenkitvathanalert, Executive Director and Head of Office Agency said we are excited to see a rebound in demand for Bangkok offices in Q2. Occupiers such as MNCs and tech companies were key market movers recently, which demanded relocation to newer office buildings. As supply started to flood in, landlords were more flexible about the rental rates to retain existing tenants and attract prospective ones. At the same time, the ESG is still in focus this year, and we expect to witness an increasing number of new developments following this route.
Thailand's GDP in Q2 2022 expanded by 2.5%, below market expectations of a 3.1% growth. The Office of the National Economic and Social Development Council (NESDC) assessed that this quarter's economic recovery was mainly supported by private consumption, which increased 6.9% Y-o-Y. The tourism and service sector witnessed a slight improvement supported by the higher number of foreign tourist arrivals from the relaxation of COVID-19 restrictions. However, the sector performance was still far below the pre-pandemic level. Private investment continued to improve in line with economic development. Public spending still expanded, but at a slower pace, mainly from expenses related to COVID-19 management. Export continued to rise thanks to improvement in trading partner's demand, although manufacturing production declined due to production material shortages.
Headline inflation is expected to rise to 6.2% at the end of 2022 compared to the previous forecasts of 4.9% at the end of Q1 2022 and 1.2% at year-end 2021. The steep rise in prices over the world was associated with high energy and commodities prices amid Russian-Ukraine tension coupled with the lockdown in major cities in Mainland China, which added strains to the global supply chain. More aggressive monetary policies from central banks around the world to curb red-hot inflation is expected, but this will also slow international economic activities. US Fed increased the interest rate three times this year with a total of 1.75%, while BOT raised the interest rate once by 0.25% to 0.75% (as of August 15, 2022), followed by a weakening Thai Baht by around 6% in this quarter alone.
The Business Sentiment Index (BSI) in June increased to 50.5 from 49.3 last month due to a gradual economic recovery, led by investment and firm performances. However, the cost sub-index dropped to 23.2, a new low in the last 14 years.
The 3-month expected BSI bounced back to 53.6, an increase of 1.2% pts from last month. The overall components improved except for production cost and employment sub-indices. Most business sub-indices stood above the 50-threshold, while the steel, construction, and real estate sectors were still subdued because building materials prices remained high.
Future Supply
While no new office building has been added to the pipeline this quarter, we have seen some construction delays from a few buildings. From 2022 to 2024, the new supply at the end of each year is expected to be 377,000, 426,000, and 295,000 sq m, respectively. The total size of the future lettable area in the pipeline remained approximately 1.76 million sq m, accounting for 30% of the current level of office supply. Around 65% of the future supply will be in the CBD.
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