PULSE - Property Market Monitor Bangkok as of March 2012
March 2012Property Market MonitorBANGKOKThe Economy flood, improved across all sectors, while exports increased modestly from the previous month. On the external front, uncertainty in western Key Economic Indicators economies remained and still posed a challenge for the recovery and GDP Growth (4Q11) -9% growth of the Thai economy. Unemployment (4Q11) 0.6% Policy rate cut to accommodate economic recovery Consumer Price Index - Headline (Feb 2012) 3.38% The Monetary Policy Committee (MPC) further reduced the policy Bangkok Bank MLR (9 Mar 2011) 7.125% interest rate this year to help push economic activity towards normal levels. With consideration of inflationary risks being well anchored and Stock Exchange of Thailand Index (16 Mar 2012) 1,189.56 the headwinds from the global economy continuing to pose risks to Thai Baht-USD Exchange Rate (16 Mar 2012) 30.86 Thailand’s economic growth, the MPC decided to reduce the policySource: Bank of Thailand, National Economic and Social Development Board, interest rate by 0.25%, from 3.25% to 3.00%.Commerce Ministry, Labor Ministry, Bangkok BankEconomic recovery from floods Business sentiment improves, albeit modestlyAccording to the Bank of Thailand, the Thai economy began improving The Private Sector Confidence index picked up slightly from last quarterin December 2011 in the aftermath of widespread flooding around but remained fragile, according to the Bank of Thailand. ConsumerBangkok. Inflation softened, underpinning stability in the overall Confidence Index (CCI) also improved slightly, up from 18.5 to 21.4.economy. Although the unemployment rate rose slightly from the Going forward, investor sentiment and confidence will largely dependprevious month, it remained low and is expected to decline going on the effectiveness of government flood relief and rehabilitation plansforward. Manufacturing, which has been adversely affected by the in restoring confidence.
2 Pulse • Property Market Monitor • March 2012Office Key Indicators BMA CBD Grade A Total Stock* (million sqm) 8.12 1.36 Net Addition (sqm) 118,000 99,000 Net Absorption (sqm) 192,000 52,000 Vacancy Rate (%) 14.9 21.7 Average Gross Rent (THB psm pm) 394 611 Rental Change 2H11 (%) –1.0 –2.15Remark: * Subject to re-audit/review of building NLASource: Jones Lang LaSalle, January 2012Moderate office supply across Bangkok in 2H11The total office supply in Bangkok rose marginally to 8.12 million sqmat end-2011 as several buildings across Bangkok were completed.In the CBD, Park Ventures, comprising Grade A office and an Okurahotel, completed adding another 25,000 sqm of office space to theBangkok and Grade A stock in 4Q11. Outside the CBD, severalprojects completed in 2H11, adding 27,000 sqm to the stock. These Park Ventures, the latest mixed-use development in Bangkok’s CBD,projects are KPI tower (11,000 sqm), Olympia Thai Tower II (2,000 comprising Grade A office and an Okura Hotel. The office component is managed by Jones Lang LaSalle.sqm) and Rungrojthanakul Building (14,000 sqm).Until the completion of Royal Rachadumri in 2013, the supply of Office demand continued to recoverGrade A office space in the CBD will be limited as no new supply will Office demand across Bangkok expanded faster in 2011, due toenter the market. In contrast, several Grade B offices in the Inner falling rents and relocations/expansions in 2H11. Net absorption forNorth are scheduled for completion in 2012. These include The 9th all of 2011 jumped to 192,000 sqm, a 65% increase over net absorp-Tower A & B (56,000 sqm), The Nine (10,000 sqm), Central Plaza tion in 2010. Meanwhile, the vacancy rate for all grades of officeRama 9 (10,000 sqm) and Palladium Square (26,000 sqm) for which space across Bangkok dropped to 14.9% at end-2011.completion was postponed from 4Q11 to 1Q12. Physical Indicators – BMA Rents and Capital Values – CBD Grade A 350,000 20% 110 Net Addition and Absorption (sqm) 200,000 250,000 15% 100 200,000 Vacancy Rate 150,000 10% 90 100,000 50,000 5% 80 0 -50,000 0% 70 2007 2008 2009 2010 2011 2012F 2013F 2014F 4Q07 4Q09 2Q09 3Q09 2Q08 3Q08 4Q08 1Q09 4Q10 2Q10 3Q10 1Q08 1Q10 4Q11 2Q11 3Q11 1Q11 Net Absorption Net Addition Future Supply Vacancy Rate Rental Value Index Capital Value Index Source: Jones Lang LaSalle Source: Jones Lang LaSalle
Pulse • Property Market Monitor • March 2012 3 gross rents for overall Bangkok and CBD Grade A space dropped slightly by 1% y-o-y to THB 394 and 2.2% y-o-y to THB 611, respec- tively as near panic about flooding in Bangkok weighed on the market. However, downward pressure on rents is likely to ease as new demand and pre-commitments for new supply is gradually being realised and leasing activity is expected to pick up. Only one building sold during 2H11 With highly volatile domestic and global financial markets, the office investment market remained quiet. Only a share of the strata-title Italthai Tower on New Petchaburi Road, outside the CBD in central east, was sold to a private buyer for approximately THB 1.2 billion. Positive outlook expected in 2012 Particularly for the CBD Grade A office market, capital value has started to pick up and is expected to rise over the medium term. A slight increase by 2% q-o-q to THB 69,699 in 4Q11 reflected a more positive outlook for the office market and the Thai economy going forward. Also, net take-up is expected to increase as limited supply is anticipated until at least 2013.A share of the strata-title Italthai Tower on New Petchaburi Road was sold to a Residentialprivate buyer for approximately THB 1.2 billion. Jones Lang LaSalle acted as theexclusive sales agent on the transaction. Active launches in Central Bangkok in 1Q12 Major developers were lining up to launch new condominium projectsMany notable transactions were reported in 2H11, including the in Central Bangkok following postponements from last quarter due toexpansion of Servcorp in Park Ventures, the expansion of L & H in the severe flooding. Notable launches include four projects under theQ.House Lumpini, the relocation of Covidien to Chamchuri Square, ‘Ideo Mobi’ brand from Ananda Development (Ideo Mobi Phayathai,the relocation of AstraZeneca to Asia Centre, the relocation of Rama 9, Sukhumvit, Sathorn), which reportedly received strongParfums & Beaute, as well as Club 21 and OSK Securities to Park pre-bookings. Asian Property has also been active with two upcomingVentures. projects under the ‘Aspire’ name (Aspire Rama 9 and Aspire Sukhum-Net absorption for CBD Grade A space also spiked, rising to 52,000 vit 48). Others include The Capital Ekamai-Thonglor, the secondsqm in 2011, from only 72 sqm in the previous year. Despite flooding condominium project from KPN Group and Siamese Ratchakru bysurrounding Bangkok, the leasing market remained active as the Siamese Asset.CBD areas were largely unaffected. Also, tenants took advantage of Recent Condominium Launcheslower rents and new buildings to acquire better quality office premises Project Developer Total Average Pricein the CBD. Units (THB psm)The completion of Park Ventures in 4Q11 did not push the vacancy Noble Unite Noble Development 255 109,000rate for the CBD Grade A sub-market up as several pre-committed Supalai Parktenants already moved in. Coupled with an increase in demand Ekamai-Thonglor Supalai 660 56,500through expansions and relocations to Grade A office in the CBD, the Siamese Thirty Nine Siamese Asset 87 94,600vacancy rate declined slightly to 21.7%, a 60 basis point drop q-o-q. Dwell Preuksa Real Estate 289 149,000Office rent declines slowed The AddressDespite the expectation of tighter conditions going forward, average Sukhumvit 61 Asian Property 99 147,500 Source: Jones Lang LaSalle, January 2012
4 Pulse • Property Market Monitor • March 2012Condo demand in non-flooded areas boosted According to statistics from the Office of Tourism Development,On the back of renewed interest in centrally located high-rise Bangkok received 12.3 million international visitors in 2011. Thisdevelopments, demand has strengthened in the non-flooded city represents an increase of 18.4% over 2010. Strong growth iscentre, from both occupiers and investors. Take-up has improved, expected to continue in 2012, with the Tourism Authority of Thailandwhile the leasing market was active last quarter. Several projects in (TAT) forecasting international tourism arrivals to increase betweenflood-spared areas enjoyed higher sales during the period. 5% and 8% in 2012.However, the magnitude of the economic recovery and investor China Bangkok’s largest source market in 2011confidence in areas which have been affected by the flood remain China, for the first time, was Bangkok’s largest source market in 2011,largely dependent on the effectiveness of the government’s stimulus based on arrivals to Thailand by nationality at Suvarnabhumi Interna-programmes and rehabilitation plans in instilling confidence. tional Airport. A total of 1.23 million Chinese visited Bangkok in 2011, accounting for 10.5% of total international arrivals, registering aRetail growth of 30.5% over 2010. Japan was the second largest source market with 1.03 million visitors, an increase of 14.2%. India was theFierce competition expected in 2012 third largest market accounting for 6.8% of total visitor arrivals and aThe strong performance of the retail market has spurred on a massive substantial growth of 20.8% from 2010. Russia, was the fastestamount of supply completing in 2012. Approximately 18 projects are growing source market with growth of 50.5%, and contributed 5.7% ofexpected to complete this year. Of this amount, eight projects, namely total arrivals with 704,074 visitors.Rain Hill (10,000 sqm), Asiatique (30,000 sqm), Seacon SquareBangkae (300,000 sqm), The Vue (5,000), The Gateway Plaza(93,000 sqm), Mega Bangna (400,000), and Thanya Shopping Park International Visitor Arrivals to Bangkok(70,000 sqm), are considered prime grade centres. 14 TSUNAMI COUP AIRPORT 25% CLOSURE 12 20%Robust demand realised in 2011 SARS GFC Number of Visitors (million) 9/11 15% 10Demand for retail space, both from newcomers and branch expan- 10% Annual Growth 8 5%sion, was active in 2011. The major leasing transactions include 0% 6Kidzania taking 8,000 sqm of space at Siam Paragon, Uniqlo opening 4 -5% -10%its second and third branches at Central Ladphrao and Central Plaza 2 -15%Rama IX (taking 760 sqm and 1,600 sqm, respectively), and IKEA 0 -20% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011opening its first branch in Thailand with total space of 43,000 sqm at Number of Visitors (million) Annual GrowthMega Bangna. *Based on international tourist arrivals at Suvarnabhumi International Airport Source: Office of Tourism Development, TAT, Jones Lang LaSalle HotelsIndustrialNew incentives and measures to help aid recovery International Visitor Arrivals by Nationality to BangkokThailand’s Board of Investment (BOI) recently announced the Top 10 Source Markets in 2011approval of new relief measures to encourage investment and China 10.5%business recovery among projects affected by the flood. The rehabili- Others 41.5%tation measures applicable to both small- and large-scale investors, Japan 8.5%and both Thai and foreign businesses, will include tax incentives (up India 6.8%to a 150% cap on new investment plus remaining unused cap or up to50% tax reduction) and exemptions (up to eight years) given to Russia 5.7% France 3.4%affected businesses under respective conditions. Australia 3.9% Korea 5.6% Germany 4.1% UK 5.4% USA 4.5%Hotels *Based on international tourist arrivals at Suvarnabhumi International Airport Source: Office of Tourism Development, TAT, Jones Lang LaSalle HotelsTourism Demand Rebounds
Pulse • Property Market Monitor • March 2012 5Hotel Supply to Increase 4 Star Bangkok Hotel Market PerformanceOur research indicates that at present a total of 44 hotels and 10,126 For full year 2011, occupancy increased 9.2 percentage points tohotel rooms are in the pipeline for 2012 through to 2015 and onwards. 61.0%, whilst ADR improved by 5.4% to THB2,638. Due to theThe majority of this new supply is due to open in 2012 (52.3%) and in increase in both occupancy and ADR, RevPAR grew significantly by2013 (24.8%). The greatest proportion of the future hotel room supply 24.1% from THB1,296 to THB1,608.is in the 4-star hotel category (50%), followed by the 5-star category(37%). Major New Hotel Room Supply in Bangkok 4-Star Hotel Performance in Bangkok 6,000 3,500 80% 5,000 3,000 70% ADR/RevPAR (THB) Number of Rooms 60% Occupancy (%) 4,000 2,500 50% 2,000 3,000 40% 1,500 2,000 30% 1,000 20% 1,000 500 10% 0 0 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 >2015 On hold 2006 2007 2008 2009 2010 2011 Completed Supply 5-star 4-star 3-star 2-star ADR (THB) RevPAR (THB) Occupancy (% ) As at January 2012 Source: Jones Lang LaSalle Hotels, Industry Sources Source: STR Global, Jones Lang LaSalle Hotels5 Star Bangkok Hotel Market PerformanceFor the full year 2011, occupancy increased 7.3 percentage points to58.1%, although ADR on the other hand improved only slightly by1.5% to THB4,662. Due to the increase in occupancy, RevPAR grewsignificantly by 16.3% from THB2,331 to THB2,710. 5-Star Hotel Performance in Bangkok 6,000 80% 70% 5,000ADR/RevPAR (THB) 60% Occupancy (%) 4,000 50% 3,000 40% 30% 2,000 20% 1,000 10% 0 0% 2006 2007 2008 2009 2010 2011 ADR (THB) RevPAR (THB) Occupancy (% ) Source: STR Global, Jones Lang LaSalle Hotels