Office rental business 2566-2567: Green Office continues to stand out, meeting the needs of tenants to preserve the environment.
Key Highlights
– “Office rental business It is one of the businesses affected by COVID-19, especially from the WFH and Hybrid Working trends that have caused some tenants to request a reduction or cancellation of rental space. Demand for office rentals in 2565 will therefore increase by only 10,000 sq m., in contrast to the increase in office space for rent by 400,000 sq m. The OR value in 2565 may therefore drop below the 85% level. First time in many years
– For the 2566-2567 trend, it is expected that the OR value will likely continue to decrease to the range of 75-80% according to office rental demand that is expected to increase only 50,000 sq m per year, lower than office space. More than 460,000 sq m of new construction is about to be completed per year. Business competition is therefore likely to become more intense through lowering rental rates to attract tenants.
– Green Office is still a segment that has continuous demand for rentals from large companies and foreign companies that pay attention to ESG trends. From the evaluation, it was found that although the development of Green Office has additional costs, 1) Set higher rental rates and 2) save energy better than general offices. This gives Green Office development a chance to pay back capital 2-3 years faster than general offices.
The office rental business is considered to be a business that is quite affected by the COVID-19 outbreak, especially from the Work From Home (WFH) and Hybrid Working trends that have a direct negative effect on the demand for office rentals. This can be seen from the trend of demand for office space rental in 2565 that will increase by only 10,000 sq m from 2564, slowing down from the historical average (2559-2563) that used to increase by more than 128,000 per year. square meters, in contrast to the new office space that will be gradually completed in 2565, up to 400,000 square meters, resulting in the Occupancy Rate (OR) of the office business as a whole adjusting down to below 85% for the first time in many years Under such circumstances This article therefore would like to invite you to evaluate the trends of the office rental business during 2566-2567 and analyze ways for entrepreneurs to adapt amidst the situation of new office space. It tends to grow many times faster than rental demand.
- What will the office rental business trend be like in 2566-2567??
Krungthai COMPASS expects that many companies will still have policies that allow employees to work from any location (Remote Working). Both WFH and Hybrid Working will result in the demand for office rentals slowing down from the past (2559-2563) which had increased by 128,000 sq m per year to 50,000 sq m per year. During 2566-2567, even though the COVID-19 outbreak will gradually subside. But we will also continue to see requests to reduce rental space or return rental space following the WFH and Hybrid Working trends, where many companies still allow employees to choose where to work even after the hard outbreak period has passed.
This view is consistent with the results of JLL's "Future of Work Survey," a leading real estate consultancy, which found that 53% of global organizations will implement policies that allow employees to work from anywhere permanently within the year. 2568 (2025 AD) because most organizations view that such a policy will have a significant contribution to attracting and retaining talented employees with their organizations (Figure 1). In this regard, the trend of requesting to reduce rental space of Tenants also agree with another JLL data that indicates that after the COVID-19 era, tenants have rental behavior that reduces space usage from before when one employee used 1 sq m of space, now it has decreased. Remaining 10 sq m.
However, new office space is likely to be gradually completed for more than 460 per year.,000 sq m during 2566-2667, accelerating almost 2 times from the historical average of only 200,000 sq m per year. The new office space that is about to increase is mainly due to the attractiveness of the rental business in the past, which has continuously had OR values as high as 90-95%, thus attracting many entrepreneurs. Turn to invest more in developing office rentals. It can be observed from the statistics of requesting permission to construct offices in Bangkok. and the surrounding area during 2560-2565 at 1,260,000 sq. m. per year, an increase from the past when construction permission was often requested for only approximately 913,000 sq. m. per year.
The new office space that will be completed and ready for full service within the next 1-2 years will mostly be in the Central Business District (CBD), such as RML's One City Center project and the Park Silom project. of NYE and RGP, the Central Park Offices project of DUSIT and CPN, while another large project, One Bangkok, on Rama 4 Road of TCC Asset, which is initially expected to have a total office space of nearly 200,000 sq m, is expected to be gradually Completed and open for service in 2566-2567, as shown in Figure 2.
The increase in office space at higher levels than rental demand is likely to pressure values. The overall OR of the office rental business has dropped to 80.5% and 77.3% in 2566-2567, which is considered a level close to the break-even point of the office rental business which is usually at the level of 75-80%. [1]Krungthai COMPASS estimates that demand for office rentals in 2566-2567 may increase slightly from 8.26 million sq m in 2565 to 8.30 and 8.36 million sq m, respectively, while office space will increase. increased from 9.89 million sq m to 10.31 and 10.81 million sq m in the same period, causing the overall OR value of the office rental business to tend to decrease from 83.5% in 2565 to 80.5% and 77.3% in 2566-2567 (Figure 3)
In addition, it is expected that the overall OR will likely intensify competition through lower rental rates to attract both existing and new tenants. As a result, the average office rental rate tends to decrease from around 820 baht/sq m/month down to 800 and 780 baht/sq m/month. Negative on average at 2.8% per year during 2566 and 2567, which is considered a direct negative factor on both income and profitability of office rental business operators.
It is noted that the OR value will drop to the level of 75-80%. This may be a sign that the Thai office rental business in general has an opportunity to enter. “Saturation” because the OR value at that level has clearly dropped to a level close to the break-even point. Investing in developing new office rental projects Therefore, it should be carefully considered and pondered. to the risks of the business that will increase in the future
however Krungthai COMPASS sees that Green Building or “Green Office” office buildings are still a segment of the office rental business that is still likely to receive good response from tenant groups. Especially foreign companies and large companies that pay attention to ESG trends, reflecting Knight Frank's data that indicates that the OR value of Green Office in 9M/2565 is still at a high level of 85.8%, higher than the overall office market at 80.3%. In the next section, we will get to know each other. And analyze the interestingness of Green Office development. How are they different compared to general offices?
- What is Green Office? Why is this an option? Interesting in development?
office type Green Building or “Green Office” is an office building that is designed and constructed with the aim of being environmentally friendly. and conserve energy An example of a Green Building standard that is widely accepted and used globally and in Thailand is LEED. [2]There will be 7-8 topics used to evaluate Green Building status. consist of Location & Transportation to encourage building users to choose travel modes that emit low pollution Sustainable Sites To encourage the design and development of buildings to have as little impact on the environment in the area as possible. Water Efficiency For reducing the amount of water used in buildings Energy & Atmosphere For reducing overall energy use and encouraging the use of alternative energy. Material & Resource To reduce the use of wasted resources or that do not meet environmental conservation standards Indoor environmental quality Keep building occupants comfortable and healthy when performing daily activities in the building. Innovation Allow building owners to adopt innovations not specified in LEED and achieve better results than the criteria, and Regional Priority[3] Encourage building construction to take into account environmental problems in the local area. As shown in Figure 4
throughout the past 10 years Green Offices that meet LEED standards in Thailand are continuously increasing from 14 projects in 2556 to 83 projects in 2565 and are likely to continue growing, reaching the level of 100 projects in 2567 according to the trend. ESG that encourages office building developers to pay more attention to environmental conservation. The outstanding and well-known Green Office includes private offices such as the offices of the Stock Exchange of Thailand. (The Stock Exchange of Thailand) at Ratchada Road, SCG 100 Years Building (SCG 100th Year Building or the head office of BCP which is near BTS Bang Chak station, as well as commercial offices for rent such as the Park Venture Ecoplex project next to BTS Ploenchit station, the Singha Complex project located at the Asoke-Phetchaburi intersection, the FYI project. Center next to MRT Queen Sirikit National Convention Center Station and the AIA Capital Center project located on Ratchada Road, etc. (Figure 5)
The main driving force that makes entrepreneurs start to develop Green Office are becoming more common because 1) developers can expand their tenant group to include multinational companies and large companies that focus on environmental conservation or ESG trends. This gives an opportunity to set rental rates that are approximately 20-30% higher than general offices in the area. Reflected from data on Green Office rental rates in CBD and Non-CBD areas, on average at 1,400 and 1,025 baht/sq m/month. This is 1,055% and 850% higher than the average office rates in the area of 33 and 20 baht/sq m/month, respectively. This view is in line with results from JLL's "Future of Work Survey" report.[4] A leading real estate consulting firm found that 74% of organizations worldwide are likely to pay higher office rent in exchange for a green office, and 56% of organizations say they would lease a green office. It must be completed by 2568. From all sampled organizations, only 2025% have never considered renting a Green Office (Figure 7).
In addition to the issue of rental rates, the development of Green Office It can also help entrepreneurs 2) save on energy costs such as electricity and water costs by up to 30%. [5]and 20%, which can help increase the profitability of entrepreneurs. Especially during periods when electricity prices tend to be continually high. An example approach to developing a Green Office to save energy is the Park Venture building that has received LEED certification at the highest level, Platinum. It uses 3 layers of energy conservation glass (Low-e) that has properties to reduce sunlight. and heat entering the building There is also the use of an Intelligent Lift System, an air conditioning system that helps control the coolness to suit the heat in each area (Variable Air Volume Control System), and also uses water used within the building to be treated and Recycled for reuse (Greywater Reuse) and used to water plants within the project. This helps the building to save up to 30% of energy. Or in the case of the Rajanakarn building which has been upgraded from a general office to the Green Building standard at the Gold level, it has invested in installing an automatic building management system (Building Automation System) so that it can Control the air conditioning system and the electrical system within the building can be done on a per-area basis. There is also the change of light bulbs in the building to LED, which reduces electricity costs by up to 30% (Figure 7).
Krungthai COMPASS Evaluate that with Green's strengths Office Both being able to 1) Set rental rates 20 higher than general offices.-30% Accompanied by 2) Helping to save energy costs for entrepreneurs It will result in investment in developing new office projects in a Green format. Office It has a payback period that is approximately 2 times faster than general offices.-3 year Under the established assumptions, Krungthai COMPASS estimates that a Green Office development with a rental area of 50,000 sq m will have a payback period of 16.5-21.2 years, faster than a general office development of the same size of 18.8. -24.2 years is 2.3-3.0 years (Figure 8). In addition, general office building owners can invest to upgrade it to a Green Office as well, but there may be different costs depending on the age. and the structure of each office. Therefore, entrepreneurs may consider hiring consultants who have expertise in preparing LEED standards, such as SCG Building & Living care solution, to help with in-depth assessments before starting operations.
This is for the guidelines for developing new office buildings. and the renovation of the original office building to become a Green Office, including the Contact Point for contacting consultants to create LEED standards. You can learn more from the article.
conclude:
Krungthai COMPASS assesses the office rental business during 2566-2567 that competition is likely to be intense. The main pressure is from 1) a slowdown in rental demand from the WFH and Hybrid Working trends that will result in some tenants deciding to reduce or cancel their rental space, contrary to 2) new office space that is likely to increase rapidly. Up to 460,000 sq m per year according to various office construction plans. That will be gradually completed within 1-2 years. Therefore, the overall OR value of the business has a chance to adjust down to the range of 75-80% and there is a chance that office business operators will have to reduce rental rates to attract. group of tenants, which is considered a negative factor on the income and profitability of the operators themselves
However, we see that Green Building or Green Office type offices are still an interesting segment, as reflected by the good response from tenants. Especially among multinational companies and large companies that focus on ESG trends, resulting in Green Office's OR value being more than 5% higher than the overall market. In addition, Krungthai COMPASS found that even Green Office There will be a higher development cost than a normal office by about 15%, but the fact that Green Office can set rental rates 20-30% higher and help save on energy costs, both electricity and water, will help invest in Green development. New office projects have a payback period that is 2-3 years faster than general offices. Developing new office projects In a situation where competition is at a high level Therefore, you should consider upgrading to Green Building measures. Similarly, general office owners can invest in upgrading existing buildings to Green Office as well.
[1] Based on https: //positioningmag.on/1258666
[2] Leadership in Energy and Environmental Design (LEED) was developed by the US Green Building Council (USGBC).
[3] The Regional Priority topic used in evaluating LEED BD+C standards is new building construction. or major building renovations only, but is not used in evaluating LEED O+M, which is the renovation of old buildings that have already been completed to become Green Buildings.
[4] Based on The Future of Work Survey 2022 It was a survey of a sample of more than 1,095 organizations around the world. And most of them are large organizations with 1,000-4,999 employees and currently renting offices.
[5] According to USGBC and articles Do LEED certified buildings save energy?
