Optimism Returns to Housing Sector
As Land Prices in CBD Rise, Overseas Investors Pile In
A better year lies ahead for Thailand developers but growth will be slower and more cautious, said international real estate advisor CBRE.
The agency said the new year started with some optimism returning, lifted by a positive global outlook.
That should translate well in bringing confidence and buying back to the housing market, it noted.
“Developers are competing fiercely for prime development sites, driving up prices to record levels,” CBRE observed.
“Both condominium prices and office rents are at record highs. E-commerce and changes in consumer behaviour are shaping the retail and modern logistic property sectors.”
The confidence was also boosted by better than expected exports and tourism growth.
Thailand finished 2017 with 3.9 per cent year-on-year gross domestic product (GDP) growth, resulting from a significant increase of 9.9 per cent for exports to all major markets.
The tourism sector, accounting for 20 per cent of GDP, saw a record 35.4 million arrivals, up 8.6 per cent year-on-year with further growth predicted for this year.
Another shift in the market has been in sources of funding coming from overseas. Local lenders do their math and figure the risks dampen further exposure to overly ambitious property projects last year, forcing many players to seek overseas funding.
More developers have formed joint ventures with foreign partners to gain access to cash abroad.
For more than a year, Thai banks had adopted a more conservative policy amid growing non-performing loan cases.
The number of joint projects in Bangkok have grown exponentially from 4 projects in 2013 to 52 projects in 2017.
Most joint ventures to date have been with Japanese investors such as Mitsubishi and Mitsui Fudosan.
But big players from mainland China are now among the wave of foreign investors. Singapore and Hong Kong are also foreign backers in the Thai property market.
The proportion of foreign buyer to Thai buyer rose slightly to from 23 per cent to 25 per sent last year, CBRE’s transactions showed.
CBRE expects foreigners to continue buying residential properties in luxury segments and those below Bt10 million.
The agency has seen professional developers make stronger efforts to sell offshore.
“Demand for prime sites remain strong with developers continuing to acquire sites for condominium, office, hotel and retail developments, said Aliwassa Pathnadabutr, managing director of CBRE Thailand.
Land prices in the Bangkok’s central business district (CBD) will continue to increase in the most prime locations near mass transit stations. Prime sites have in some cases increased by 25-30 per cent yearly.
Another was the record price of Bt3.1 million per square wah for an 880 square wah plot on Soi Lang Suan by SC Asset.
Developers are starting to diversify with residential condominium developers looking at moving into income producing office, retail and hotel properties.
The limited amount of available prime freehold sites will drive prices higher but at current levels, most players have put o brakes as they do not see prices justifying returns or the risks, observe CBRE and other5 realty researchers.
Steady Demand for Offices Property
Nithipat Tongpum, head of advisory and transaction service for office at CBRE Thailand expects steady demand of 200,000 square metres per year for the next few years.
However, he dose not expect a sudden jump in demand.
The vacancy rate is 7.8 per cent and falling, while rents have risen between 4 and 5 per cent for all grades in all locations.
“As rents rise, office tenants will seek to reduce occupation costs by applying workplace strategies so they can put more people on less space”, said Nithipat.
Rising rents and changes in international accounting rules where leases now have to be accounting for on the balance sheet will affect the market.
Four international co-working space operators will open their first locations with a combined area of about 18,000 square metres in office building in Bangkok’s CBD this year. CBRE expects they will continue to expand.
Retail Landlords to Create New Experiences
CBRE Research anticipates that the contest between “bricks versus clicks”, with the disruptive effect of e-commerce on traditional retail formats, will start to be felt in Thailand in 2018.
CBRE predicts that the vacancy rate of 5 per cent will fall as renovations are completed on existing shopping centres.
New supply will be about 300,000 square metres in 2018, compared to 100,000 square metres in 2017, increasing competition among retail centres to attract customers.
Retailers will also become omnichannel with a mixture of online and offline sales which could mean they need less space.
Retailers and retail landlords will have to adapt by not only creating unique experiences but also providing convenience that cannot be replicated online.
E-commerce Drives Demand
The growth in e-commerce will lead to increased demand for all forms of modern logistics properties (MLPs), according to CBRE Thailand. As of Q4 2017, the overall occupancy rate of MLPs stood at 79.2%, improving from 78.6% in the previous quarter.
The value of global e-commerce market has accelerated every year. For every US$ 1 billion of e-commerce sales in the US, 100,000 square metres of additional logistics space is needed, according to CBRE’s Industrial Property Research.
Thailand’s e-commerce value in 2017 was estimated at $ 2.84 billion or accounted for about I per cent of total retail sales.
CBRE predicts increases in e-commerce sales in Thailand will have a similar effect on the demand for MLPs.
Source: The Nation – 29 March 2018