Bangkok apartment market and Covid-19
Some short-term upside as leases are extended to avoid virus-related issues.
Covid-19 has had a minimal impact on the apartment market to date, yet it has caused unusual effects and even some short-term benefits.
As most apartments are based on yearly contracts, it is a case of delayed impact rather than no impact, where occupancy and rental income could drop from the second quarter of 2020 onward.
There have been some interesting consequences, such as some expats retaining apartments and continuing to pay rent despite being called back due to states of emergency in their home countries. Owners of some apartments have refused viewings and move-ins due to fear of infection.
Interestingly, there are also short-term upsides as current leases are extended to avoid moving and entailing pandemic exposure. This is beneficial to apartment landlords as occupancy continues even after original leases expire without needing to find a new tenant and the associated marketing, repair or cleaning costs.
However, the market is expected to be more challenging in the future. Key issues are reduced housing budgets for expats working in affected industries and layoffs prompting downgrading or even leaving Thailand.
Many landlords are taking a pragmatic approach, offering 5-15% discounts for regular leases and trying to lock in longer-term (two years or more) leases with discounts of up to 33% for the latter, in addition to being more flexible with lease lengths (six-month or even monthly contracts).
Landlords will need to adapt to changing market conditions by including more widespread offerings of shorter (six-month or monthly) lease terms and lower rents. For project-by-project expats and long-stay tourists, monthly leases would provide a spacious and more affordable alternative to serviced apartments and hotels.
Meanwhile, current tenants can be retained by offering extensions, flexible due-date schedules and the conversion of security deposits into rental payments if needed.
Although landlords may view shorter leases, lower rents and other retention measures as inconvenient, they are vital strategies to retain current tenants, explore new groups such as project-by-project expats and long-stay tourists, and tap into fast-growing expat nationalities. The latter include Chinese, Filipino and Indian expats whose numbers have grown strongly by 65%, 54% and 28%, respectively, between 2015 and the first quarter of 2020.
In a nutshell, owners of apartments must adapt by providing lease terms that attract broader audiences and offer more assistance to tenants to ensure their product is a variable cost that tenants can continue to afford, as opposed to a fixed cost that must be foregone for other alternatives.
Supawit Mahaguna is an analyst with research and consulting, CBRE Thailand. He can be reached at email@example.com