Flood impact on Bangkok office market remains limited

Yet, the government is yet to announce clearer water management plan, or long-term impacts will be felt.

While almost 30 major office buildings in the Vibhavadi-Rangsit and Phaholyothin areas have been hit by floods and the whole impact on Bangkok office market has yet to unfold, observations from Jones Lang LaSalle show the Bangkok office market has seen limited impact so far.

"Most of the office buildings in the city are located in downtown areas which have remained dry. In addition, a typical office lease term of three years does not provide flexibility for tenants in office buildings located in the flood area to move out before their lease expires. However, as the floods continue to spread, it may be too early to tell how the Bangkok office market will be affected by the flooding," said Suphin Mechuchep, managing director of Jones Lang LaSalle.

In this stage, some companies become less keen to make leasing decisions as they are waiting to see if or how their business operations would be impacted by the widespread floods.

"We expect this to be only temporary and leasing activity should recover once the floods recede," she said.

The widespread flooding in the northern corridor of Bangkok has generated demand for temporary substitute offices in the inner areas of the city which are at lower risk of flooding as the operations of some companies located in the flood areas have been disrupted.

"We have received an increasing number of enquiries from companies for temporary offices in the inner locations of Bangkok. These companies are those whose offices are currently located in the areas that are affected by floods or that are at risk of floods. These enquiries require fully or partly fitted office units, sized between 50 and 300 sqm, that are available for an immediate occupation for a period of 1-2 months," added Yupa Sathienpabayut, Director of Office Agency at Jones Lang LaSalle.

She noted that temporary offices charge 20 per cent higher than rental rates offered on a long lease term.

The agency also witnessed calls from seen some big corporations for temporary offices in locations outside Bangkok such as Pattaya, Sri Racha and Laem Chabang as part of their business continuity plans.

Suphin noted that in the longer term, the flooding could send some impacts on the Bangkok office market. Many companies that operate in industrial estates affected by the floods have corporate offices in Bangkok. More companies may opt to set up a separate corporate office in Bangkok to diversify operational risks, she said.

"On the adverse side, the Bank of Thailand has recently lowered its forecast for the country's GDP growth in 2011 from 4.1 percent to 2.6 percent. Demand in almost every real estate sector will inevitably be impacted as it depends very much upon the country's overall economic condition. To minimise the degree of the flood impact, the government must come up with a sound recovery plan to restore confidence," she concluded.