As this year's rainy season draws to a close, concerns over new floods have subsided. One common question in the industrial property sector now is whether the sale prices of factories, warehouses and land in industrial estates which were affected by the 2011 floods dropped significantly, and if they have recovered.
The answer may surprise many.
While the asking prices of these properties dropped significantly during and shortly after the 2011 floods, the actual sale prices have stayed unchanged to date.
This is because there were no sales transactions taking place over this period, and so there are no figures to indicate if sale prices have in fact dropped.
Following the extreme rainfall in 2011, the plains of central Thailand suffered from the worst floods in 67 years. Eight major industrial estates where local and international production facilities are located were flooded, leading to major supply chain disruptions. With insured losses that were estimated to exceed 210 billion baht, the floods resulted in Thailand's highest-ever economic loss from a natural disaster. Yet five months after the 2011 floods, all eight industrial estates started recovering, allowing companies operating on the estates to reinstate their facilities and resume operations.
According to Jones Lang LaSalle's observations, more than 60% of the companies in the flood-affected industrial estates have already resumed operations, and more are following as restoration work continues on site.
These companies have received aid from the government in the form of tax relief.
Discussions with companies operating on flood-affected industrial estates show there are a number of factors informing their decisions not to relocate to new industrial estates, despite concerns about repeated disasters. Of these, the financial factor is the key one _ acquiring land and building new facilities involves a much higher investment outlay.
In addition, these companies have prepared themselves to handle floods more efficiently. During the 2011 floods, many companies operating in high flood risk areas were on the lookout for temporary warehouse space in low-risk zones to store goods, production supply and equipment. The exercise was a major challenge as the supply of warehouses available for short-term lease was limited.
Since then, these companies have reviewed or developed more robust business contingency plans that could be implemented efficiently when such unforeseen circumstances arise.
This includes flexibility to secure temporary warehouse and logistics facilities quickly if there is new flooding.
Moreover, companies have become more confident in the government's flood protection plans and in measures implemented by industrial estate operators themselves, which include the construction of flood dykes with partial financial support from the government.
In July this year, the government approved a budget of six billion baht for building flood-protection dykes at six industrial estates and also secured 2.1 million rai of land for flood retention areas with a capacity of 5.1 billion cubic metres.
DEMAND REMAINS LOW
Sales transactions in the flooded industrial estates came to a complete halt between the final quarter of 2011 and the second quarter of 2012.
As expected, some operators of these estates reduced prices significantly over the same period in an effort to encourage sales.
However, no sales transactions were reported. This came as no surprise, as the marketability of any property depends more on buyers' confidence than on the discount offered by developers.
With the industrial estates now recovering from the floods, Jones Lang LaSalle's observations show that asking prices in these estates have also recovered to pre-flood levels.
Nonetheless, sales in these industrial estates have remained subdued as buyers now concentrate on estates in areas that were safe during the 2011 floods. These include estates located in some eastern provinces, notably Chon Buri, Rayong, Chachoengsao and Prachin Buri.
Having said that, the majority of land plots had been sold many years ago. There are some companies that shut down operations following the 2011 floods and decided to dispose of their property assets, including land at prices ranging between three million and five million baht per rai (including buildings).
These properties have now drawn the interest of some opportunistic investors who believe the floods were an isolated incident.
In the longer term, it is expected that demand in the previously flooded zones will recover as confidence is restored gradually, a reflection of the flood protection and management efforts that are now in place.
LAND PRICES UP IN LOW-RISK AREAS
While prices in the flood-affected industrial estates have stayed flat, the shift of demand for industrial land to low flood risk areas has pushed the prices of land in those areas up by 10-25%.
Amata Corporation, for instance, raised the prices of plots in its industrial estates by 25% in August. Industrial land prices in low-risk areas vary between two million and eight million baht per rai, depending on their proximity to Bangkok.
They continue to move upwards due to strong demand.
Sales figures from a leading industrial estate operator, Hemaraj Land and Development, reflect this strong demand. The company reported the sale of 1,952 rai of land over the past three quarters, representing a 61% increase from the same period in 2011. This has encouraged operators to expand or build new industrial estates in low flood risk locations, notably Rayong and Prachin Buri.
Hi-Tech Industrial Park, whose industrial estate in Ayutthaya was badly affected by the 2011 floods, has opened a new industrial estate in Prachin Buri including 1,100 rai of land. Rojana Industrial Park, also hit hard by the floods in Ayutthaya, has opened a new industrial estate in Prachin Buri with 4,000 rai of land.
Ultimately, the events of 2011 may not have dampened the prices of flood-affected industrial estates, but they have certainly generated enthusiasm for industrial land in safer zones.
Subyagorn Sansugtaweesub is the head of the industrial agency at Jones Lang LaSalle. For advice on industrial property, readers can contact him on 02-624-6400 or visit www.joneslanglasalle.co.th.
About the author
Writer: Subyagorn Sansugtaweesub