Despite Thailand falling into a technical recession amid increased internal and external macro risks in the second quarter, the overall Bangkok property market was not affected significantly, as key indicators and sentiment remained largely stable.
Demand was robust in the office and condo sectors, with the latter recording upbeat launch activity, according to the latest report by property consultant DTZ.
Growing competition in the retail sector has led to problems for poorly managed new malls, which are struggling to maintain tenants and increase foot traffic.
DTZ expects property fundamentals to remain healthy in the short term.
The Bangkok office sector continued to perform well, as leasing momentum was maintained at a robust pace due to the shortage of suitable office space.
Prime office stock in the third quarter stood unchanged from the previous quarter at 1.7 million square metres, with no new supply.
Developments will start coming on board late next year, with 205,000 sq m expected to be completed from 2014-17 in the central business district.
There has also been active sourcing among institutional investors and private equity funds for offices that command value-added potential. Amid the difficulties in securing assets, DTZ expects investors to broaden their scope to include secondary offices and those with medium-term capital appreciation opportunities.
Net absorption of prime offices rose by 10,736 sq m to reach a cumulative 25,562 sq m during the first three quarters. In line with this increase, occupancy levels in the third quarter rose to 90% from 89.4% in the second quarter.
The demand for offices was driven largely by business expansion and consolidation. However, it will become increasingly difficult to find suitable space that matches the requirements of corporate tenants, so net absorption is expected to moderate until new supply is available.
On the back of strong demand, average rents in the third quarter rose to 690 baht per sq m per month albeit at a slower pace of 0.7% from 685 baht in the second quarter.
On a year-on-year basis, the level of growth remained on par with the previous quarter at 6.2%.
A tight supply of strategic prime space will continue to constrain rents and net absorption, leading to a narrower level of growth in the short term until new supply comes on board.
The overall sector fundamentals look positive in the short and medium term. But new risks have emerged that could affect business sentiment including domestic politics and unstable global economic positions that may affect capital flows.
Bangkok retail stock increased by 8,300 sq m to stand at 1.2 million sq m with the addition of two boutique developments in the downtown area. There were no new completions in midtown areas, so retail stock was unchanged at 606,736 sq m.
In downtown and midtown areas, about 192,000 sq m of retail space is expected to come on board next year, signifying an active year for the retail market.
Amid growing competition, new and smaller players are finding it increasingly difficult to achieve traffic momentum and retain tenants. This is particularly evident among some of the newer community malls in midtown and suburban areas. Developers are expected to be more prudent in future.
The average occupancy levels among downtown and midtown malls declined slightly to 91.1% and 93.6%, respectively, in the third quarter from 91.4% and 94% in the second quarter.
DTZ foresees leasing activity will pick up after completion of new malls, particularly prime malls.
There has been a prominent rise in Asia-Pacific investors seeking opportunities in the retail sector. However, some are studying greenfield development options, as there is a lack of suitable retail acquisition assets and takeover opportunities.
Retail rents in both downtown and midtown areas remained unchanged in the third quarter at 2,310 and 1,570 baht per sq m per month, respectively.
Rentals were expected to start rising in the fourth quarter as new malls neared completion and tenants finalised leasing deals.
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