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2019 Year-end Wrap-up for Bangkok Commercial Market

December 18, 2019
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Office landlords in Bangkok are preparing for supply influx while the overall retail industry faces low consumer confidence. This year, the number of Chinese tourists has started recovering, according to CBRE, a leading international property consultant.

Bangkok Office Market:

The office market in Bangkok continues to perform strongly in 2019, but challenges will be coming in the near future from the large amount of new supply. As of Q3 2019, over 125,000 square metres of new office space has been completed so far with another 70,000 square metres expected to be completed by the end of the year. The increase in supply is still in line with the steady net new take-up of 200,000 square metres 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 majority of the new developments located along the mass transit lines.

Co-working spaces have played a major role in becoming key source of office demand in the recent years. A significant movement came from CPN joining with Common Ground, entering to compete, capitalising on the retail spaces within their portfolio.

Rents have continued to increase this year at the rate of 3% to 5% Y-o-Y since majority of the office buildings with high rental rates have been occupied. CBRE expects rents to continue to increase in the near future but at a slower pace as more landlords are unwilling to increase their rents to keep their tenants in the building, especially in old office buildings.

“As a lot of supply will be added to the Bangkok office market in the next four years, we expect vacancy rate to rise in older buildings where tenants will likely move from Grade B to Grade A office buildings due to small rental difference. Landlords will need to offer attractive lease terms together with upgrading their buildings to compete in the highly competitive market,” said Ms. Roongrat Veeraparkkaroon, Head of Advisory and Transaction Services - Office, CBRE Thailand.

Bangkok Retail Market:

Overall, the Thai retail industry has remained stagnant this year as Thailand faced a low sentiment period and a decrease in spending power due to high household debt. Consumer Confidence Index (CCI) hit its lowest point in 39 months, falling to 72.2 in September 2019, dropping by 10.1 percentage points Y-o-Y. In addition, the household debt was reported to have broken a new record since 2017 at 78.7% of total GDP, which heavily impacted the overall spending power.

In the second half of 2019, the government has launched new policies and campaigns to stimulate domestic spending including welfare cards, interest rate cut, and the “Shim-Shop-Chai” (Eat-Shop-Spend) scheme where the government gives away e-money and tax breaks for domestic travellers. CBRE believes this campaign could be more beneficial to major retail players, especially in Department Store and Superstore formats, because of their ease of accessibility compared to local shops located in the countryside.

According to CBRE Research, Bangkok’s total retail supply, as of Q3 2019, was 7.8 million square metres, increasing by 4.39% Y-o-Y. Notable projects completed in this year include The Market Bangkok, Donki Mall, Samyan Mitrtown and Bangkok’s first outlet mall, Central Village.

Ms. Jariya Thumtrongkitkul, Head of Advisory and Transaction Services - Retail, CBRE Thailand, commented, “While the trend of “retailtainment” continues to develop in Bangkok’s retail scene, this year, we have started to see more co-working space occupying large space in retail centres in CBD areas. Retail developers expect this synergy to increase their retail centres’ foot traffic on weekdays as well as fill large, vacant space in less-desirable zones. To compete in a highly competitive market, some retailers also resized their own traditional stand-alone stores to allow these stores to fit in other Shopping Malls, Community Malls and Superstores."

Not only have offline retailers moved towards omni-channel retailing, many new online retailers have also been expanding into offline outlets in physical retail space as showrooms and ‘click & collect’ points. In order to survive in a market with a large number of future retail supply in the pipeline, retail developers will need to embrace the fast-moving technology and create new unique selling points for their retail centres.

Bangkok Hotel Market:

Thai tourism has shown that it is as strong and as resilient as ever. International tourist arrivals for the first nine months of 2019 have increased by 4.3% Y-o-Y, reaching 32.5 million. In Q3, the number of Chinese tourists, Thailand’s biggest market feeder, has started to recover with a 17.3% Y-o-Y increase, rebounding from its drop last year. Indian tourists have also shown promising increase, growing by 26.7% Y-o-Y since the Visa-on-Arrival campaign was launched, according to the Ministry of Tourism and Sports.

The average occupancy rate of downtown Bangkok hotels for the first nine months of the year, according to STR, was 77.8%, slightly down by 2 percentage points Y-o-Y while Average Daily Rate (ADR) also decreased by 1.8% Y-o-Y to THB 3,386.

Mr. Atakawee Choosang, Head of Capital Markets - CBRE Hotels in Thailand, added, “The number of hotels in downtown Bangkok continues to increase and is expected to be at 49,000keys by the end of 2019. Bangkok will be seeing a significant increase in the luxury hotel segment as more than 1,600 keys from luxury hotels are already in the pipeline and expected to be completed within the next three years. Four Seasons Hotel Bangkok at Chao Phraya River, Capella Bangkok, Kimpton Maa-Lai Bangkok and Sindhorn Kempinski are all scheduled to be opened by 2020.”

However, CBRE believes that the Thai baht’s appreciation will be a key challenge to the tourism industry since it will be more expensive for tourists to come to Thailand.

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