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BANGKOK PROPERTY MARKET : OVERALL MARKET IN 2007

By on Dec 12, 2007 in Research

The condominium and industrial sectors were the best performers in the Bangkok property market in 2007, according to the leading international property consultants CB Richard Ellis.

Medium priced condominiums continued to attract a new generation of purchasers in locations near mass transit stations.  Luxury condominiums in the downtown area performed well with prices of newly launched projects increasing.   Industrial properties were the other star performer, with 40% increase in land sales in the first nine months of 2007 and rental factories attaining high occupancy rates in 2007.

The office and retail markets were slow due to weak domestic demand.  Bangkok hotels suffered lower-than-average occupancy rates. There was a 22.7% drop in the number of developer-built single-detached houses completed and a 15.7% drop in developer-built townhouses completed in the first six months of 2007.

According to Ms. Aliwassa Pathnadabutr, Managing Director of CB Richard Ellis Thailand, in 2008, the prospects for office property will principally rely on the economic prospects after the election and the new government’s policies. There is latent demand for houses in good locations shown by high sales rate for new projects launched this year. The completion of the final section of the outer ring road will provide new areas for future residential development. There will also be more housing projects along the Airport Rail Link, which is scheduled to be opened next year or early 2009.

“Condominium prices in the downtown area will continue to rise next year. Prices of newly launched condominiums in mid-town locations will increase at a slower rate as end-users tend to choose newly completed condominiums rather than condominiums sold off-plan. The market for serviced apartments in downtown Bangkok will be competitive since there will be a number of new serviced apartments due for completion next year. The luxury hotel market in Bangkok will perform well next year if there are no more security issues in Bangkok. The market for industrial properties looks bright as the government’s eco-car policy has already started to spur transaction activities,” added Ms. Aliwassa.

Housing Market
The housing market was weak with 7,054 developer-built single-detached houses completed in the first six months and 4,560 developer-built townhouses, representing 22.7% drop and 15.7% drop, respectively.  The total new residential supply is expected to drop by about 20% in 2007, compared to that of 2006. 

For 2008, the completion of the Outer Ring Road has opened a new area for development that will now have convenient access to the city centre.  Consumer confidence will be critical to the performance of the housing market next year.

Condominium Market
The overall performance of condominium market sector was outstanding given the unfavourable economy throughout the year. Completed downtown supply reached 50,000 units in the third quarter of this year and will be about 52,600 units at the end of the year. Occupancy rates of existing condominiums in the downtown area have been increasing steadily throughout the year to about 87% at present. 

The average price of grade A condominiums rose from 110,000 baht per square metre in the first quarter to about 123,000 baht per square metre, and is expected to be over 126,000 baht per square metre by the end of 2007, rising by about 12% from the beginning of the year. 

The emerging “Skytrain” generation and the changing lifestyle of city dwellers have been key drivers for the mid-range condominium market in secondary locations. The mid-range condominium market, mostly priced between 65,000 – 80,000 baht per square metre, has been active throughout the year.   1,656 mid-range units will have been completed in downtown Bangkok in 2007, representing a 13.4% increase y-o-y.  In the next few years, more than 2,800 new units are expected to be completed in this segment in downtown Bangkok.
 
There will be approximately 8,700 new units due to be completed in 2008 as opposed to about 6,300 completed units this year.  The majority of future supply will be concentrated in the Sukhumvit and Riverside/Rama III areas, followed by Pathumwan, Silom/Sathorn, and Central Lumpini. “CB Richard Ellis remains confident about the downtown luxury condominium market. We are still seeing strong demand from both Thai and foreign buyers,” said Ms. Aliwassa.

Expatriate Rental Apartment Market
The expatriate apartment market continued to perform well despite a 6.6% increase in supply and completion from rental units in condominiums.   The average occupancy is likely to drop slightly from 89% last year to about 86% by the end of this year.

The number of expatriates with work permits in Bangkok grew to 71,401 in August 2007, a 9.3% increase from last year.

The average achieved rents for grade A apartments dropped in all areas by 2-8% while average achieved grade B rents managed to increase slightly during the year.

CB Richard Ellis expects that the apartment sector will perform well in 2008 provided that the number of expatriates continues to grow. The apartment supply in the downtown area is expected to rise slowly at a rate of about 3% next year, while the number of expatriates is likely to increase at a faster rate in 2008. The average rental rate may be stable in the short term as housing allowances are not being increased. Rentals of new and newly renovated apartments, however, could push up the average rent in the longer term.
Serviced Apartment Market
The total supply of serviced apartments will reach 10,756 units at the end of this year, increasing by 21.6% y-o-y.   Demand, however, was weak due to political instability and the sluggish economy.  Demand from tourists also slowed. The average occupancy rate is expected to drop to about 79% for 2007 compared to 83% recorded last year. The average achieved rent has increased only slightly this year by about 1%.

The increase in supply will continue to put more pressure on rents and occupancy rates. There will be more than 2,000 new units completed in 2008. The pressure from the supply side together with the current weaker-than-average demand could limit increases in occupancy and rental rates next year unless demand increases. We will see more serviced apartments targeting daily guests to help maintain their revenues.

Office Market
The Bangkok office market has witnessed delayed expansion and few new start-ups this year due to a weak economy, political uncertainty and concerns about foreign ownership of companies. The total net new take up in the first nine months of the year was 122,000 square metres and CB Richard Ellis expects that the total for the whole of 2007 will be only around 150,000 square metres. This will be 26.5% less than 2006 and 50% of the average annual take up between the years 2000 and 2005. Rents increased only by 2.2% in 2007 for grade A CBD offices. The total office stock at the end of 2007 will stand at 7.47 million square metres, increasing by 150,000 square metres this year.

The office market in 2008 will rely on latent demand from multi-national companies which could rebound quickly once the policy direction toward foreign investment becomes clear.  CB Richard Ellis believes that if there is a more overseas investor friendly policy and a democratic government, investor confidence will be restored which will boost the office market next year. There will be at least 165,000 square metres of new supply in 2008, including the 90,000-square-metre Chamchuri Square on Rama IV, the 45,000-square-metre Interchange 21 at the Sukhumvit-Asoke junction.
 
Retail Market
The market for retail property has been slow for much of 2007, due mainly to the weak economy.   The total supply of retail space in Bangkok will grow by 4.9% y-o-y at the end of 2007. Although demand was weak, the average occupancy rate remained well over 90% for all of 2007. The slowing market made it difficult to increase rentals in most retail centres this year.  Total retail sales were flat.

More developers are building community malls.  Tesco Lotus and CPN also plan a strategic move into community mall development. There will be at least seven new community malls in Bangkok by the end of 2008. The change in consumer lifestyle to shop near their residence has encouraged more community mall developments. The proposed retail and wholesale law if passed and implemented will restrict future retail property development.

Industrial Property Market
2,611 rai (1,044 acres) of Serviced Industrial Land Plots (SILPs) were sold in the first nine months of 2007, a 40% increase on the same period in 2006.   The market for Ready-built Factories (RBFs) has been performing well throughout the year, with 86% occupancy rate. Like the SILP market, Japanese businesses continued to be the major tenants for the RBF market.

The market is expected to be active in 2008. With the total value of the Board of Investment (BOI)-approved projects increased by 99% y-o-y in the first three quarters of 2007, CB Richard Ellis is looking forward to more transactions in 2008. New supply of SILP of about 3,251 rai at the end of this year is expected to be quickly absorbed by the rising demand. The eco-cars are likely to be the next driver of the automotive sector, spurring the industrial property market in 2008. Favourable investment policies of the new government will be crucial to carry on the momentum into next year. 

Hotel Market
The overall performance of upscale hotels (luxury and first-class hotels) in Bangkok was weak throughout the year 2007. Hotels in resort destinations, such as Phuket and Koh Samui, outperformed their peers in Bangkok. The average occupancy rate of upscale hotels in Bangkok is expected to be only 70% by the end of year 2007, compared to 75% in 2006. Although the Average Daily Rate (ADR) increased 12.1% y-o-y in dollar terms to US$158 in Q3 2007 and is likely to reach US$170 by the end of this year, the increase was only about 2% in Baht terms.  

CB Richard Ellis forecasts that more than 2,000 new upscale hotel rooms in Bangkok will be completed in 2008, raising the supply by 24% from 2007. Competition will be intense if demand does not recover from this year’s level.  Resort hotels in tourist destinations will continue to perform well as the number of tourist arrivals continually increases. 

CB Richard Ellis remains confident about the Thai resort property market having expanded the Phuket office and opening offices in Koh Samui and Pattaya in 2007.   Restrictions on foreign ownership are still challenging as almost all demand in resort locations is from foreigners.  CB Richard Ellis hopes that a newly elected government will look at increasing the foreign quota for condominiums, a 99 year lease and permitting foreign buyers to borrow money locally to fund property purchases.

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