The Bangkok office market continues to remain strong with steady demand. As a result, landlords have enjoyed an increase in rental rates, according to CBRE Thailand, the local unit of the international property services consultancy.
The total net take-up of office space in Bangkok for the first nine months of this year was 140,000 square metres and should reach 200,000 by year-end, CBRE said.
Based on the latest survey by CBRE Research, the capital has more than 850,000 sq m of new office space now under construction and due for completion between now and the fourth quarter of 2022, with more than half of it in the central business district (CBD).
There is still more than 1.7 million sq m of office space being planned. CBRE expects construction to start on more projects in 2019, which will increase the future supply completed in 2022 to at least 500,000 square metres.
Demand growth is steady at around 200,000 sq m per year and rents will continue to rise, but at a slower rate until around 2022 when new supply will exceed demand, according to Nithpat Tongpun, head of advisory and transaction services for offices at CBRE Thailand. Co-working space has become an emerging source of demand, especially in new Grade A buildings, with 44,000 sq m of space leased over the last 18 months.
As more co-working space is completed, it will compete more directly with traditional office space and may reduce net take-up.
RETAIL REVIVAL
The Thai retail industry continues to recover in line with the moderate expansion of the economy. Consumer confidence is growing, but the retail property sector still faces challenges from weak domestic consumption and due to the rapid transformation in the global retail landscape.
The retail sales index in August 2018, as estimated by the Bank of Thailand, was 275.22, representing a 17.7% increase from the same period last year. The Consumer Confidence Index (CCI) in August also increased by 9.7% from last year. Nonetheless, household debt remained high at 78% of GDP, affecting the spending power of local consumers.
The Thai retail industry is facing ever more intense competition from new retail supply and e-commerce. Based on a survey by CBRE Research, in 2018, 200,000 sq m of new retail supply emerged in four major developments including Iconsiam, Gateway At Bangsue, the second Ikea at Central WestGate and The Marvel Experience Thailand at Mega Bangna. Despite positive macroeconomic indicators, many major retailers have reported flat same-store sales growth due to weak domestic consumption.
As of the third quarter of 2018, there was about 1.4 million sq m of new retail space under construction or planned in Bangkok. With growing competition, the challenge for landlords is the ability to evolve from offering similar products and services to creating retail experiences that will meet customers' high expectations.
According to the Electronic Transactions Development Agency (ETDA), the value of Thailand's e-commerce market in 2018 is 3.06 trillion baht and. JD Central estimates the e-commerce market currently accounts for 3% of total retail sales, which is expected to increase to 10% within five years.
"As a growing number of consumers prefer to use both online and offline channels, bricks-and-mortar retailers are being forced to adopt omni-channel strategies to integrate their physical stores and online shopping in order to create 'experiential retail'," says said Jariya Thumtrongkitkul, head of advisory and transaction services for retail with CBRE Thailand.
"This rapid transformation of the retail landscape means malls must innovate or die."
HOTELS OPTIMISTIC
The Thai tourism market continues to grow steadily. China remains Thailand's largest feeder market accounting for around 30% of all international tourist arrivals. However, the hospitality industry has seen a sharp slowdown in growth from China following the Phuket boat tragedy in July, which resulted in the drop of Chinese inbound arrivals by 8.8% year-on-year in the third quarter of 2018.
However, CBRE believes that Bangkok was less affected by this as the total number of international tourists disembarking at both Don Mueang and Suvarnabhumi airports has not declined from last year.
According to STR Global, average occupancy in downtown Bangkok has remained high since the beginning of the year and is currently at around 80%. Hoteliers have experienced many periods of record high occupancy in the past two years and are now more confident in raising room rates. In the third quarter of 2018, the average daily rate (ADR) increased by 4.3% year-on-year while occupancy remained stable. Revenue per available room (RevPAR) also increased, showing a positive trend for the Bangkok market.
By the end of 2018, there will be 46,800 rooms in the Bangkok downtown market, increasing 4.6% from 2017. CBRE Research forecasts that there will be 11,000 more rooms completed by 2022, based on announced developments. The total supply in downtown Bangkok will then grow by 25% to around 58,000 rooms, with most of the future supply in mid-range grade hotels.
The challenge remains on winning back the Chinese tourists to respond to the large amount of incoming future hotel supply.
"Considering that Bangkok is the top overnight market tourist destination in the world, according to the Mastercard's 2018 Global Destination Cities Index, we optimistically expect to see healthy performance in the high season of the fourth quarter of 2018, driven by the end of year Christmas and New Year holiday," said Atakawee Choosang, head of capital markets for hotels with CBRE Thailand.
MORTGAGE CURBS
In the residential market, bank lending for real estate remains tight for both developers and buyers. Growing concerns about residential mortgage lending prompted the Bank of Thailand to reduce loan-to-value ratios to 80-90% for second-home mortgages and 70% for third-home mortgages, which will restrict activity by speculators and investors.
Banks' tighter lending policies have driven Thai developers to source fund overseas through joint ventures. Since the beginning of 2018, there have been more than 15 major partnerships formed between Thai and foreign companies, at least 75% of them with Japanese developers.
Kulwadee Sawangsri, head of capital markets for investment and land at CBRE Thailand, says there is still demand for prime freehold sites, but developers are being more selective and it is becoming harder for them to agree to the increased asking prices as they are affecting the feasibility of projects.
Some developers are shifting their focus towards leasehold land, but they will only agree to 30-year or 50-year leases in a handful of locations where they think they can make a sufficient return over the lease term.
Several developers are also diversifying from build-to-sell residential projects toward build-to-hold income-producing assets including serviced apartments, offices and hotels.
