Although expatriate numbers are only growing slowly in Bangkok, there is still opportunity in the downtown residential rental market for apartment developers.
The main demand for rental residences in downtown Bangkok comes from expatriate tenants.
There were just over 85,000 expatriates with work permits in Bangkok at the end of 2017 with only 1.2% annual growth, according to Alien Occupational Control Division, Department of Employment.
In Thailand, an apartment building is a property where one person or entity owns all the units whereas in a condominium building there are different owners for each of the units.
Expatriates still want to live in a limited number of locations -- Sukhumvit, Lumphini and Sathorn.
According to CBRE Research, the total stock of expatriate standard apartments in these locations is around 10,000 units. There are 90,000 condominium units in the same locations and CBRE estimates that 30-40% of these condominium units are owned by investors who rent out their properties.
Apartment occupancy is still strong at around 96%, but the occupancy of condominiums for rent varies much more.
The total monthly amount spent by expatriate tenants has not changed for many years, with budgets in a range between 55,000 and 70,000 baht per month for a two-bedroom unit and 85,000 and 90,000 baht per month for a three-bedroom unit.
Despite the low growth in demand and monthly rental budgets, there are still opportunities for apartment developers.
Many tenants, especially Japanese expatriates, prefer single ownership apartments rather than multi-ownership condominiums because they can speak directly to the owner's representative on all issues in the building, especially maintenance.
In a condominium, the property manager is only responsible for management of the common areas. If there is a problem inside the unit, the tenant must contact the individual owner who cannot always respond or fix the problem quickly.
Much of the existing downtown residential rental property supply is getting older and becoming in some cases less attractive. Many apartment owners have refurbished their buildings, but not always the key elements such as bathrooms and kitchens.
This situation is more acute in condominiums where many owners of units in older buildings have done minimum refurbishment and in many cases, the common areas of older condominiums are looking very dated.
This provides opportunities for developers of new apartments. They will have to compete with new condominiums but much of the new condominium supply is one bedroom units whereas much of the expatriate demand is for two- and three- bedroom units.
Chani Residence on Sukhumvit Soi 55 (Thong Lor Soi 13) was completed in the last quarter of 2017 and is a good example of a successful new apartment development. The project has three buildings with two- and three-bedroom apartments and is already 40% leased, primarily to Japanese tenants. The landlord has achieved rents of 75,000 - 80,000 baht per month for two-bedroom units of 100-115 square metres and 95,000 - 100,000 baht per month for 150-180 square metres three-bedroom units.
CBRE Thailand, the sole leasing agent, is confident of reaching full occupancy for the project in the first half of 2018.
Theerathorn Prapunpong, head of Residential Leasing Services at CBRE Thailand, believes there are several key factors that contribute to the success of an apartment building in Bangkok.
In terms of location, Sukhumvit is still the most popular district, but only those areas within one kilometre of the main road, with the most popular clusters being around Asoke, Phrom Phong and Thong Lo.
There is still demand for two- and three-bedroom units with less potential competition from condominiums where 75% of the supply under construction is one-bedroom units.
The efficiency and utility of the space are more important than the exact size, but the area cannot be too small.
Finishes, furnishing and appliances are very important as it is the overall look and feel of the property that will determine its appeal.
Most of the tenants are families and so facilities especially swimming pool, children's playground and fitness room are important.
CBRE does not expect expatriate numbers to increase significantly in 2018, but the ageing of the current rental stock and the small sizes of new condominium supply mean that there are still opportunities for apartment developers.
For existing apartment owners, maintaining the quality and standards is critical because of the competition. For buildings more than 20 years old, it will often be necessary to replace the kitchens and bathrooms to bring them up to date with tenants' needs and tastes.
Property management is also important and the best-managed apartment buildings rarely have units that are vacant for long, provided the owners ask for market rents.
Malin Phlernjai is an analyst, Research and Consulting, CBRE Thailand. She can be reached at bangkok@cbre.co.th Facebook: CBRE.Thailand Twitter: @CBREThailand LinkedIn: CBRE Thailand and website: www.cbre.co.th