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Thailand Industrial – Q 2 2009

By on Sep 17, 2009 in Industrial, Research

The major highlight of this quarter was that sales of Serviced Industrial Land Plots (SLIP’s) rose by 187% q-o-q to 255 rai in Q2 2009 SILP’s but this was due to the Thailand Tobacco Monopoly buying 240 rai at Rojana Industrial Park. Only 344 SILPs have been sold in 2009 to date, this compares with 4,170 in the whole of 2008 marking a reduction of 74%. The total SILP stocks did not change in Q2 2009, it remained at 97,924 rai (38,716 acres). We are now seeing that Industrial land developers are surviving from income other than land sales, such as rental from buildings and utility sales. B.O.I. project approvals are still disappointingly low. The total value of BOI-approved projects decreased by 56.1% y-o-y, compared the first seven months of 2009. The total value of BOI-approved projects was THB 115.2 billion in 7M 2009. 482 projects have been approved by BOI since the beginning of this year, down 27.6% y-o-y. 65% of the total investment value was located in BOI Zone 2. The largest contributions came from the service and infrastructure sector (THB 49 billion), followed by the agriculture product (THB 23.2 billion), and the metal products sector (THB 19.3 million).

Thailand’s position remains that of
A base to manufacture products for the South East Asian market.
To diversify risk by not locating all manufacturing capacity in China – “China plus one”
Thailand’s main strengths are it has a well developed infrastructure and a solid base of supporting industries, however the current political instability could be seen as a weakness. Vietnam remains Thailand biggest competitor for the “China plus one” market. Vietnam has lower labor rates but its infrastructure is not as developed as Bangkok. Foreign Direct Investment (FDI) into the industrial sector dropped 17% y-o-y in 5M2009, while foreign direct investment from Japan, Thailand’s major foreign investor, has decreased by 27% y-o-y.

Foreign Direct Investment
Foreign Direct Investment (FDI) into the industrial sector in 5M09 was down 17% y-o-y from US$ 1,904 million to US$ 1,605 million compared the first five months of last year. However, FDI into other sectors increased by 3.3% y-o-y. FDI from Japan, Thailand’s major foreign investor, decreased by 27% y-o-y from US$ 1,450 million to US$ 1,065 million (5M09 compared to 5M08).

During Q2 2009, the total supply of SILP was 97,924 rai unchanged from the last quarter. No new serviced industrial lands plot was completed during Q2 2009. Approximately 9,700 rai of SILPs is under development as of Q2 2009. Of this amount, 1,700 rai is located in BOI Zone 3, while more than 8,000 rai is located in BOI Zone 2. Hemaraj has the largest expansion plans, with approximately 5,000 rai in Hemaraj Eastern Seaboard Industrial Estate (H-ESIE).

Serviced Industrial Land Plots (SILPs)
The Eastern Seaboard (Chonburi and Rayong) is still the most popular location for SILPs due to proximity to the port and better logistics, while Ayutthaya is favored because it is near Bangkok. Hemaraj is continuing with the large-scale expansion of its Hemaraj Eastern Seaboard Industrial Estate by separating it into three phases of development. The first phase consists of 2,000 rai and expected to complete in 2009, and is 70% complete currently. The second and third phases have total land of 3,000 rai, which is scheduled to be developed within the next two years. Almost 1,800 rai of SILPs are being developed in sections in Rojana Industrial Park (the eighth phase) in Ayuthaya Province. Completion dates range from 2008-2014 but the exact period is dependant on sales progress. The second phase of Amata Nakorn’s expansion in Chonburi, which will add 1,000 rai of SILPs, is underway but a completion date has not yet been announced. Wellgrow Industrial Estate in Chachoengsao province has plans to develop approximately 60 rai as part of its second phase of expansion. Completion is scheduled for the second half of 2009.
As well as these Thai Factory Development (TFD), Kabinburi and Navanakorn (Korat) all have future plans to develop land.

Three major industrial estate developers are listed on the Stock Exchange of Thailand (SET)-Amata Corporation Plc (AMATA), Rojana Industrial Park Plc (ROJANA) and Hemaraj Land and Development Plc. (HEMRAJ). Rojana Industrial Park has the largest proportion of land sale, accounting for 94% of the total land sale in this quarter.

Largest Transaction
Thailand Tobacco Monopoly (TTM), a state enterprise under the Finance Ministry, bought 240 rai of industrial land plot in Rojana Industrial Park, Ayutthaya to relocate their existing plant which is located in central Bangkok.

Ready Built Factories
During Q1 2009, the total number of RBFs increased by 2.6% q-o-q and or 8.3% y-o-y to 589 factories (in term of number factories). A total of 15 factories were completed in this quarter,of these, 4 factories with a total area of 10,200 m2 were from Ticon, another 4 factories were from Hemaraj, while the other 7 factories with total space of 16,942 m2 were from Pinthong.
Ticon accounts for 35% of total RBF supply (by area), followed by TFUND (31%) and Hemaraj (12%). Combined, TICON and TFUND (a property fund set up by TICON) account for 66% of the total RBF supply.

The occupancy rate of ready-built factories was 74.6% in Q2 2009, down from 77.5% last quarter. Total leased space now stands at 905,664 m2. This is mainly a result of small manufacturers slowing or stopping production, while a few companies have vacated their premises.

Asking rents for RBFs have generally remained unchanged since Q2 2008. Asking rents range from THB 120 /month /m2 to THB 220 /month /m2. RBF leases are usually for a period of three years, with a deposit of three to six months. All other expenses are borne by the tenant, including household tax, estate management fees, insurance premiums, utilities, and other expenses.

Outlook
Although SLIP’s figures rose by 187% Q-o-Q this figure is skewed as the Thailand Tobacco Monopoly took 240 out of the total 255 Rai sold. Demand still remains very weak, this was backed up by the low B.O.I project approvals. On a more positive note the manufacturing production index (MPI) although down Y-o-Y was up a healthy 11.4% Q-o-Q, indicating that the market may be improving.

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