Older Office Buildings get renovated

As office rents continue to rise, there is a growing tendency of corporate occupiers searching for superior new buildings in “fringe” places with outstanding infrastructure support. Though, occupiers who like better prime locations in the CBD region are forced to consider secondary grade office buildings in prime locations that present more reasonably priced rents as alternative. Taking in this tendency, a few landlords with older buildings have carried out renovation of their buildings in efforts to make certain highest rental rates. Others jump on the bandwagon to keep up competitiveness.

There are three older office buildings with more than 63,000 sqm of combined space whose renovation was or will be finished in 2008, and more buildings are likely to take in renovation in the second half of 2008.

Renovation is a return-maximizing policy that landlords of older buildings can employ in current market circumstances. With strong ongoing levels of occupier demand and the need of new Grade A supply pushing rental rates upwards, landlords with a few well positioned buildings may completely renovate and re-release their buildings as re-branded properties to the market to increase competitiveness and maximize rentals.

Companies whose office lease will terminate in a little while may be surprised by the latest rental rates asked by the landlords when discussing lease renewal. At the same time as the usual office lease term in Bangkok is 3 years, the average rental of office space has augmented by 50% in the last three years. Those taking up space in Grade A buildings in the CBD area may bear more as rentals are quite elevated than secondary Grade buildings. There is no uncertainty that an escalating number of companies are searching new Grade A buildings in fringe places or secondary grade buildings in the CBD as alternatives to keep away from higher possession cost.

After renovation, a few secondary buildings in well positioned areas could get noteworthy rental growth rates ranging between 20% - 30%, depending on the value of renovation. Though, the new rentals would still be very aggressive compared to Grade A buildings in the same locality and permit a striking investment return from renovation.

Renovation could also be a nice approach for investors looking to invest in the Bangkok office market, where Grade A buildings obtainable for sales are restricted.