Office landlords in Bangkok are preparing for a new supply influx while the overall retail industry faces low consumer confidence. In the hotel sector, the outlook is improving as the number of Chinese tourists has started recovering, according to CBRE Thailand.
Co-working spaces have become a key source of office demand in recent years. Photo courtesy of CPN x Common Ground
OFFICES
The office market continued to perform strongly in 2019, but challenges will emerge in the near future from the large amount of new supply.
As of the third quarter of 2019, more than 125,000 square metres of new office space had been completed so far with another 70,000 sq m expected to be completed by the end of the year. The increase is still in line with the steady net new take-up of 200,000 sq m per year, according to CBRE's database and forecast.
However, a million square metres of office space is under construction and scheduled to be completed between 2020 and 2023 with the majority of the new developments located along mass-transit lines.
Co-working spaces have become a key source of office demand in recent years. A significant move came when Central Pattana Plc (CPN) joined forces with Common Ground, looking to capitalise on the retail spaces in the vast CPN portfolio.
Rents have continued to increase this year at the rate of 3% to 5% year-on-year since the majority of buildings with high rental rates have been occupied. CBRE expects rents to continue to rise but at a slower pace as more landlords reluctant to raise rents for fear of losing tenants, especially in older buildings.
"As a lot of supply will be added to the Bangkok office market in the next four years, we expect the vacancy rate to rise in older buildings where tenants will likely move from Grade B to Grade A office buildings due to the small rental difference," said Roongrat Veeraparkkaroon, head of advisory and transaction services (offices) with CBRE Thailand.
"Landlords will need to offer attractive lease terms together with upgrading their buildings to compete in the highly competitive market."
RETAIL
Overall, the Thai retail industry has remained stagnant this year in the face of weak consumer sentiment and reduced spending power because of high household debt. The Consumer Confidence Index (CCI) hit a 39-month low in September at 72.2 -- down by 10.1 percentage points from the same month a year earlier. In addition, household debt, at 78.7% of GDP, now exceeds the record set in 2017.
In the second half of 2019, the government launched new campaigns to stimulate domestic spending including welfare cards, an interest-rate cut, and the "Chim-Shop-Chai" (Eat-Shop-Spend) scheme, under which domestic travellers can receive e-money and tax breaks. CBRE believes Chim-Shop-Chai could benefit major retail players, especially those with department stores and superstores, because of their ease of accessibility compared with local shops located in the countryside.
According to CBRE Research, Bangkok's total retail supply, as of the third quarter of 2019, was 7.8 million square metres, up 4.4% year-on-year. Notable projects completed this year included The Market Bangkok, Donki Mall Thonglor, Samyan Mitrtown and the capital's first luxury outlet mall, Central Village.
"While the trend of 'retailtainment' continues to develop in Bangkok's retail scene, this year Jariya Thumtrongkitkul, head of advisory and transaction services (retail), with CBRE Thailand.
As well as fill large, vacant space in less-desirable zones. To compete in a highly competitive market, some retailers have also resized their own traditional stand-alone stores to allow these stores to fit into other shopping malls, community malls and superstores."
Not only have offline retailers moved towards omnichannel retailing, many online retailers have also been expanding into offline outlets with showrooms and "click and collect" points. In order to survive in a market with a large number of future retail supply in the pipeline, developers will need to embrace the fast-moving technology and create new unique selling points for their retail centres.
HOTELS
Thai tourism has shown that it is as strong and resilient as ever. International arrivals for the first nine months of 2019 increased by 4.3% year-on-year, reaching 32.5 million.
In the third quarter, the number of Chinese tourists, Thailand's biggest market, started to recover with a 17.3% year-on-year increase, rebounding from its sharp drop in the same period last year following a boating tragedy off Phuket. Indian tourists have also shown a promising increase, with arrivals growing 26.7% year-on-year since the visa-on-arrival campaign was launched, according to the Tourism and Sports Ministry.
The average occupancy rate of downtown Bangkok hotels for the first nine months of the year, according to the hospitality industry tracking firm STR, was 77.8%, down 2 percentage points year-on-year, while the average daily rate (ADR) decreased by 1.8% to 3,386 baht per room.
"The number of hotels in downtown Bangkok continues to increase and the supply is expected to reach 49,000 rooms by the end of 2019," said Atakawee Choosang, head of capital markets with CBRE Hotels in Thailand.
"Bangkok will be seeing a significant increase in the luxury hotel segment as more than 1,600 rooms from luxury hotels are already in the pipeline and expected to be completed within the next three years. The Four Seasons Hotel Bangkok at Chao Phraya River, Capella Bangkok, Kimpton Maa-Lai Bangkok and Sindhorn Kempinski are all scheduled to open by 2020."
However, CBRE believes the baht's appreciation will be a key challenge to the tourism industry since it will be more expensive for tourists to come to Thailand.