Office oversupply crisis: Transitioning to the 'green building' era

Amid a sluggish economy and an influx of new supply, Bangkok's office market is facing mounting pressure from all sides. This includes rising tenant expectations and increased competition between "old" and "new" office buildings, where the focus has shifted from just "rental rates" to the "efficiency of building owners." 

The first quarter of 2025 saw office supply surge by 524,000 sqm, pushing the total office space in the market to 6.314 million sqm, entering a phase of “demand lagging behind supply.”

Panya Jenkitvathanalert, partner and managing director of the office division at Knight Frank Chartered (Thailand) Ltd., stated that the Bangkok office market in Q1 2025 is showing signs of a critical turning point. Insight from the latest report suggests that, while the market is still growing in some aspects, such as a slight increase in leasing rates and rising popularity of buildings certified with green building standards, the pressure from the influx of new supply coming into the market throughout this year will significantly alter the competitive landscape.

“We are seeing clear changes. Building owners who demonstrate effective management are making a difference in this highly competitive market,” Panya noted.

An important factor influencing the Thai economy in 2025 is its projected lowest growth rate in years, expected to expand by only 2%. This growth forecast assumes international trade tax issues will remain manageable. However, if the US raises taxes, growth could dip to just 1.3%. In this climate, many businesses and office tenants are slowing down their expansion plans and seeking offices that offer “value” beyond just price.

The Business Sentiment Index (BSI) for Q1 reflects this volatility. While the manufacturing sector has seen a boost in confidence due to increased exports before potential tax hikes, the services and tourism sectors remain fragile.

Supply Surge: A New Challenge for the Market

As the economy remains sluggish, Bangkok's office market is facing a large wave of new supply in 2025, with 524,000 sqm of new office space entering the market—the highest in years!

In just the first quarter, the total office space increased to 6.314 million sqm, with new buildings like WorkLab on Rama 4 Road entering the market. Additionally, 1.1 million sqm are currently under construction, including projects like GR9 and The Central. This indicates that the market will continue to face pressure from the influx of new supply in the medium to long term.

Tenants Becoming More Selective: Rent is No Longer the Only Factor

Although the overall market appears stable, with a net absorption of 31,000 sqm and an average occupancy rate of 77.5%, significant changes in tenant behaviour are evident. Green-certified buildings have seen net absorption rise by 51,000 sqm, while traditional buildings experienced a decline of 17,000 sqm. This reflects the growing importance of "sustainability" for tenants in today’s market.

Grade A buildings with standout features are showing strong recovery, with occupancy rates increasing by 2.1% to 78%. However, Grade B buildings still face challenges, with occupancy rates remaining stable at 76%, indicating the pressure middle-tier buildings are facing from both sides.

New Risk: Tenant Concerns About "Safety"

Following the major earthquake in Myanmar on March 28, tenant concerns about "building safety" have been heightened, particularly among large companies with Business Continuity Plans (BCP).

While new buildings may have higher rental costs, they offer greater reassurance regarding structural integrity, communication systems, and emergency management capabilities. In contrast, many older buildings continue to face issues, such as malfunctioning elevators and slow responses to problems, which have become negative factors in leasing decisions.

"Rent can rise if it guarantees business continuity. Many tenants are now considering building management practices more than just focusing on rental prices."

Grade A Dominates – Grade C Stabilises – Grade B Weakens

Location-based analysis reveals that the Silom-Sathorn-Rama 4 area has seen the most significant growth within the CBD, with increased rental rates and occupancy at their highest levels. In contrast, areas like "Ploenchit-Chidlom" and "Asoke-Nana" have experienced slight declines in occupancy rates, indicating a divide between "winners" and those "needing to adapt" in terms of market competition.

Outside the CBD, areas like "Bangna-Srinakarin" have shown the most notable increase in occupancy rates (+1.4%), reflecting new opportunities in locations with lower rental costs and easier access via public transportation.

Second Half of 2025: A Test for Building Owners

While Q1 data doesn't suggest an impending "crisis," the road ahead for the office market is filled with overlapping challenges. The influx of new supply for the remainder of the year will test whether "old" buildings and existing operators can adapt. This is especially true as tenants become more discerning, prioritizing "user experience" and emergency preparedness over just rental price.

Additionally, with the uncertainty of international trade policies, if long-term taxes are reintroduced under a potential Trump administration, multinational companies may opt to "delay leasing" or seek more flexible and cost-effective spaces.

Thus, 2025 is not just a year of recovery post-COVID-19, but a "year of proving" for office building owners. It will reveal who can truly meet the demands of modern tenants in terms of functionality, sustainability, safety, and service readiness. Operators sticking to outdated models and failing to adjust their strategies may find themselves at a disadvantage in a market now competing on deep capabilities, rather than just location or price.

Today’s office market is no longer about being the biggest player, but about being the quickest and most attuned to tenant needs.