Despite the notable expansion of Bangkok's commercial property sector, arm's-length transactions of significant income-producing assets have been limited, with not a single Grade-A office building having been sold over the past decade.
An arm's-length transaction refers to a deal between two independent, unrelated parties so the resulting amount of such a deal is considered a fair representation of the value.
Although overseas interest in Thai property as an asset class has risen, the combination of barriers to foreign ownership, prominence of domestic property groups and absence of income-producing assets offered for sale have led to a comparatively low transaction volume of income-producing properties by regional levels.
Approximately half of the 70 office buildings sold over the past decade were arm's-length transactions, with the remainder changing hands between vendor-sponsored property funds or connected parties.
The past two years have witnessed only one sizeable arm's-length commercial property sale over the 1-billion mark, with Sun Towers, a grade-B non-CBD building being sold for 4.5 billion baht in 2015.
In terms of retail centres, 16 transactions took place in the last 10 years, only six of which were arms-length, with ownership of Bangkok's prime shopping malls largely dominated by prominent local property groups.
While foreign nationals are able to purchase strata-title units within co-owned buildings through freehold tenure, provided the total number of foreign-owned units does not exceed 49% per building, foreign ownership of land is prohibited.
The introduction of real estate investment trusts (REITs) two years ago opened up investment in the commercial property market to foreign nationals although the principal route for prominent foreign entities to enter the Thai market has been through joint ventures with local partners.
Although the latter has resulted in a series of high-profile partnerships, most notably within the residential sector, China Resources' collaboration with M. Thai, to develop All Seasons Place, is the only example of a domestic-foreign partnership put in place undertake a predominantly office scheme, with terms agreed back in 1989.
With the Bangkok office market set to perform strongly over the coming 24 months, the appetite among domestic groups to build on considerable land holdings currently earmarked for office development, collectively able to accommodate about one million square metres of leasable space, will likely increase.
When considered against a backdrop of cautious bank lending, a growing domestic demand for foreign capital paves the way for an environment conducive to mutually beneficial joint venture terms and presents opportunities for overseas to explore Bangkok's commercial property sector.
Chris Hobden is Senior Manager, Research and Consulting, at CBRE Thailand. He can be reached at bangkok@cbre.co.th Facebook: CBRE.Thailand Twitter: @CBREThailand LinkedIn: CBRE Thailand Website: www.cbre.co.th