According to a survey conducted by the CBRE Research & Consulting team, the office market had an overall vacancy rate of 15% in the second quarter of 2005, compared to 19% in the same quarter of last year. The CBD grade A vacancy rate was 8.2% in the second quarter of 2005. The total amount of occupied of grade A CBD office space increased by 2.2% compared to the previous quarter.

CB Richard Ellis estimate that lower than 200,000 square metres of new office space will be completed in the next two years, mainly in buildings where construction is now resuming after having been halted following the 1997 crisis. Demand is expected to be of at least 300,000 square metres per year for the next two years. This difference between supply and demand will further reduce vacancy rates and fuel rent increases.

Mr. Nithipat Tongpun, Director Head of Office Services at CB Richard Ellis, believes that CBD grade A rent will reach Baht 650 by the end of 2005 and Baht 700 in 2006 for 200-300 sq.m. transactions.

'There is very limited space available in the CBD grade A market and few buildings coming on line over the next two years."

'Tenants have to plan ahead their space requirements, particularly tenants who do not have a cap on the renewal term as landlords will be looking for substantial rent increases when leases come up for renewal," added Mr. Nithipat.

There is still a 30-40% difference in rents between grade A and grade B buildings, and we may see some tenants in existing grade A buildings move to grade B buildings to avoid an increase in their total rental costs.

CBD grade B space is filling quickly too: the vacancy rate was 17.5% in second quarter of 2005, compared to 22.5% in the same quarter last year.

Proximity to mass transit systems is proving to be a significant factor in determining rental levels. CB Richard Ellis has seen that buildings located close to BTS or MRT stations achieve higher occupancy rates and rents.

CB Richard Ellis believe that grade A rents will have to rise to Baht 800 or more per square metre before we see developers break ground to construct new buildings.

CB Richard Ellis noted that some Landlords of older buildings have commenced renovation works so that they can achieve higher rents.

For example, both Ploenchit Centre and Amarin Plaza are undergoing extensive renovations to upgrade all common areas of the office buildings. The Government Pension Fund is currently remodelling the ground floor of Abdulrahim Place on Rama IV.

The Bangkok office market is a simple matter of supply and demand. Office demand will exceed new supply, resulting in lower vacancy rates and therefore upward pressure on rents. Developers are still not breaking ground on new buildings and so the tight market situation will continue for the next two years.