Life Goes On, and the Market will Survive
Published on Bangkok Post dated 20 June 2010 By Nina Suebsukcharoen
The full consequences of the May political unrest have yet to be felt, but the demand for residences, offices and industrial properties in Bangkok just refuses to go away
It is still too early to assess the impact of the two months of civil disturbance on all types of property because the market moves far more slowly than the stock market, said James Pitchon, executive director of CB Richard Ellis (CBRE).
Changes are slow even in the rental market because office tenants usually have three-year lease commitments and residential tenants are tied to year-long agreements, while retail tenants tend to hold three- to 25-year leases.
“Frankly it is too early to say what the impact will be on prices, rentals and the level of transaction activity,” he said.
However, it seems that no matter how bad the situation may look, the market does continue to move. Although the company had to move to a temporary office at the Bitec centre on the Bang Na-Trat Highway to continue functioning, CBRE concluded some transactions even in mid-May when the numbers of deaths and injuries were mounting in Bangkok. The transactions were in Bangkok and Hua Hin, and were a mixture of new sales and resales.
“So life goes on, and people are still going to need somewhere to live. They are going to need offices, they are going to need factories and they are going to continue to shop,” said Mr Pitchon.
He said that as far as the residential market is concerned, his earlier concern had been that it seemed to be approaching a level of overheating because a number of projects were sold out in the first quarter.
“Our concern now is over the [lower] demand volume, but we still believe that some of the momentum factors remain the same. For example, the desire to live next to a mass transit station.”
Although some people think projects farther into a soi will gain favour with buyers who see them as safer in light of the arson of buildings on major roads after the red shirt protest was suppressed, Mr Pitchon does not believe the market will turn this way.
“In that case, how are they going to get to work? How many buildings were burned? Come on, it has been exaggerated.
“It’s a bit like saying Londoners would never use mass transit again after the [2007 terrorist] bombings – that didn’t happen.
“I’m convinced people still want to live close to the mass transit system because of the convenience.”
It is expected that the level of speculative buying will decrease but will not die out completely. People will still be looking at property as an income-producing investment as long as interest rates on bank deposits remain low.
Turning to the office market, Mr Pitchon said that the demand has been low since 2006, both because of the domestic political situation and the global financial crisis.
“We were starting to see an economic recovery in the first quarter of 2010, but that has not yet resulted in increased demand. However, there are still people leasing new office premises.”
An emerging bright spot for this market may be when companies start reviewing their business contingency plans in the aftermath of the violence in Bangkok.
“We may see companies that have multiple locations in Bangkok choosing to locate at least one office at a greater distance from the others,” he said. “So who knows what will happen? We may see people putting a greater distance between their facilities. This could benefit locations along the BTS skytrain extension to Soi La Salle, which is expected to be operating in 2011.”
The mass transit system is the key to setting up an office a little further away from the central business district, because from the user’s point of view the physical distance covered by the train is not important. This means business facilities don’t have to be crowded into one area.
The broad picture shows that there is very little new supply coming into the office market. Only one “grade A” office, Sathon Square, will be completed this year and another, Park Venture, next year.
“There are two grade A office buildings under construction, so we will have to wait and see what will happen to demand, but we do not expect to see a significant number of companies closing.”
In the industrial land market, Mr Pitchon said the overall numbers were looking better in the first quarter following a recovery in global demand for manufactured products, but again, this has been influenced by the unrest.
“Manufacturing areas and ports were not affected by the protests, but obviously Thailand’s image has been badly damaged as a destination for investment in manufacturing.”
The hotel market suffered the most immediate impact of the unrest in Bangkok. “Hotels have to sell their rooms every night and obviously we saw the closure of a number of hotels, along with multiple travel advisories from foreign governments.”
Both Bangkok and Phuket saw arrivals improve in the first quarter of the year, with the April figures for Bangkok being similar to 2009, and the figures for Phuket better than in 2009 and 2008.
“I believe that there are many repeat visitors to Thailand who despite the turmoil and bloodshed in May have a loyalty to Thailand as a destination,” said Mr Pitchon.
“The May figures are obviously going to be very poor, but we are also now entering the low season. The big test will be how Thailand performs in the peak season at the end of the year.”
Mr Pitchon added that one of the biggest challenges in the hotel industry continues to be the amount of new room inventory, which was a problem even before the events in April and May. Should the number of tourist and business arrivals drop, this will be a tougher issue to resolve.
However, he added, even in the period immediately after the unrest there were some significant capital transactions. A major example was AIA being selected by the Stock Exchange of Thailand to buy its 9.6-rai site on Ratchadaphisek Road for 1.6 billion baht.
Two other examples were the Seacon Group’s acquisition of the 500,000 square metre Future Park Bang Khae shopping centre for 2.5 billion baht, and the sale of the Ban Taling Ngam Hotel on Koh Samui for 750 million baht.