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The concept of office condominiums has long existed, but today we rarely come across it in the market. The majority of office supply in Bangkok is single ownership, which means the building is wholly owned by the landlord with office space available on a rental basis. Office condominiums, on the contrary, offer outright ownership structure as a condominium project.
At present, out of the total office supply in Bangkok, 25 per cent are office condominiums, the majority of which are located in non-CBD locations. In CBD locations, office condominiums only account for 4 per cent of the total CBD office supply. The market for office condominiums was at its peak during the 90s with demand driven by speculators and investors.
One of the primary reasons office condominiums did not do well is that there is limited demand from the end-user market
Most corporations, especially multinational companies, prefer not to own assets and they all want the flexibility to expand and relocate. If they cannot find space to expand within the building, they will be left with the problem of disposing of the office space, which is challenging as the office condominium resale market lacks liquidity. With this inflexibility, renting office condominiums is also less popular for tenants, compared to single ownership buildings.
Another factor is the quality of the building and management. Like aging condominiums, office condominiums face a similar problem of upkeep and maintaining the building quality and management under a strata title. Poor management and lack of funds for building improvements reduces the building’s attractiveness, as well as the price appreciation potential.
As a result of the above factors, after the 1997 financial crisis there has been little new supply of office condominiums on the market.
The most recent one in the CBD is Trendy building, which was completed in 2008.
Prices of office condominiums have been static, averaging around Bt35,000 to 38,000 per sqm during the early 2000s. Today, the average achieved price of office condominiums in the CBD has gradually moved up to the region of Bt40,000 to Bt50,000 per square metre. There are a few buildings that are better managed and have achieved higher than the market average. For example, Lake Rajada is one of the best quality and better-managed office condominiums and has achieved close to Bt70,000 per sqm.
With the ongoing demand, there are certain end-user companies who do want to own an office building but are unable to afford one, or the decision would not make financial sense given the current land cost in the CBD. It is doubtful whether there is sustainable demand to develop new office condominiums for sale and whether the prices achieved will justify the investment as the current prices are well beloe replacement cost.
The choices for large end-user companies are confined to developing a new building or purchasing old buildings in a less than prime location. For small and medium-sized companies, apart from shophouses, CBD office condominium is a good alternative. We believe prices for a good quality and well-managed office condominium in the CBD will appreciate further.
However, price appreciation may not be as favourable as it should be as office condominiums are still faced with limitations in terms of capital expenditure available for major renovations of the building, particularly monitoring and evaluation. Published on The Nation Dated 28 May 2012 by Aliwassa Pathnadabutr, Managing Director of CBRE Thailand