Bangkok’s easing property market

Bangkok’s easing property market
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Bangkok’s property market in the first half of 2007 may have showed considerable signs of a slow down, but the short-term outlook has improved due to Thailand’s political instabilities improving. According to real estate services and investment management firm Jones Lang LaSalle, the future of the property market in the second half of the year depends highly on the overall prospect of the economy.

Mrs. Suphin Mechuchep, Managing Director of Jones Lang LaSalle, says "The lack of consumer and investor confidence experienced over the past 18 months due to the political chaos continued to negatively affect the commercial property markets in the first half of 2007. Demand for office and retail space grew only marginally as businesses were reluctant to expand. In the second quarter of the year, sentiment looked up to a certain degree, largely due to a clearer political picture and the interim government’s stated commitment to holding general elections by the end of the year. However, Jones Lang LaSalle’s latest study shows leasing activity in the office and retail sectors remained generally quiet as businesses’ continued to take wait-and-see stances."

“Many observers are calling an oversupply in the condominium market. While our findings show the market has continued to enjoy strong demand, based on anecdotal evidence, a large proportion of condominium purchases in central Bangkok are made by investors buying and intending to put units up for rent. With competition in the leasing market further intensifying as more units are completed and offered for rent, demand from investors could wane in the near future,” says Mrs. Suphin.

Office market suppressed

Two new office projects- King Power Complex Building and Pipattanasin Tower, with 20,550 sqm of combined space were completed in Bangkok in the first half of 2007. Two office buildings with some 20,000 sqm of space were withdrawn from the market over the same period, leaving the total office space stock unchanged 7.4 million sqm. The average vacancy rate for all-grade office space across Bangkok contracted slightly to 13.2% while vacancies in grade A buildings in Central Business District (CBD) averaged 11.3%.

Leasing activity in Thailand appears to be relatively subdued, currently due to the lack of new businesses being developed and set up. Also existing corporations and businesses are not appearing to require further office space or make any changes.

Ms. Caroline Murphy, Head of Markets at Jones Lang LaSalle, says “Over the first half of 2007, the Bangkok office markets witnessed only a limited number of new leases. Leasing activity over the period was predominantly for renewals. Whilst net take-up of new office space across Bangkok in the first half of 2007 totalled only 66,000 sqm, Jones Lang LaSalle alone helped corporate secure lease renewals accounting for combined space of 31,000 sqm over the same period. This exemplifies the case well.”

"Realising a slow growth of new demand, landlords have become less aggressive in demanding higher rents on new leases so as to attract new tenants," says Ms. Caroline.

Jones Land LaSalle’s study indicates that the average rental for all-grade office space in Bangkok has continued to escalate for six consecutive years now. Rates have seen such a dramatic growth from Bt262 per sqm a month to its present level of Bt403 per sqm per month. However, rents remained flat for the first time since 2001, during the first half of 2007. In the Grade- A market in CBD, the average rental rose only slightly by 2.5% over the same period to Bt666 per sqm per month.

Bangkok, in the second half of 2007 welcomed two new offices with a combined space of 101,000 sqm on to the market. This included- Athenee Tower (40,000 sqm) on Wireless Road off Sukhumvit and Cyber World (61,000 sqm) onto Ratchadapisek Road. Both of the projects were developed by T.C.C. Group and Jones Lang LaSalle were appointed leasing agents for both projects.

Ms Murphy comments "With over 100,000 sqm of new space coming on in stream in the Bangkok office market during the second half of 2007, we may see vacancies rise by year end, should demand continue to grow at the same pace as over the past six months. However, with political uncertainty clearing up and economists expecting the Thai economy to improve in the second half of the year, demand for office space may pick up in the second half of the year."

The completion of nearly 200,000 sqm of office space is set for 2008. "Though the Thai economy is expected to see some improvement next year following the general elections, statistics show that the average take-up rate for office space in Bangkok in a ´normal´ situation is 250,000 sqm per annum, it remains questionable whether demand in 2008 will reach that level. This will depend mainly on the economic growth that Thailand will achieve next year," said Ms. Murphy.

Close eye to be kept on the condo market

Concerns are growing regarding the condo sector of the market in Bangkok, despite the fact the bubble could soon burst, findings from Jones Lang LaSalle’s study show that the market for new projects remains robust. Over the past six months growth has continued and new supply and demand is keeping the market flourishing.

According to a recent Jones Lang LaSalle’s study, the number of condominium units in central Bangkok now totals 54,280, including 3,630 units completed over the past six months. More than 20,000 units are currently under construction, with twenty new projects comprising 5,420 units launched in the first half of 2007.

Mr. Dan Tantisunthorn, Head of Research at Jones Lang LaSalle, says "In spite of growing concerns that condominiums are overbuilt in Bangkok, our study shows that over 97% of the units in completed projects have already been sold. Among projects that are currently under construction or being marketed, the sales rate still appears healthy at over 75% of the units offered."

Over the past six months, Jones Lang LaSalle’ study indicates that over 6,000 condo’s were sold in central areas in Bangkok over the past six months. The projects mainly were mainly located in the CBD areas, with close proximity to the BTS or MRT stations. Most of these units were the studio and one-bedroom types with prices ranging between Bt1.4- Bt2.0 million, targeted at growing demand from a new generation of young professionals who have limited budgets but prefer living in a condominium in or with mass-transit access to the city centre.

"In spite of certain indications that the condominium sector is booming, there are a number of factors which lead us to believe the market is nearing a peak," says Mr. Dan "Asking prices are rising at a much slower rate compared with previous years and existing supply is remaining idle for longer periods of time," he adds.

Statistics from Jones Lang LaSalle show that average asking prices of condominiums in central Bangkok saw the biggest jumps in 2003 and 2004, of almost 30%. Price growth slowed to an average of 10% per annum in 2005 and 2006. In the first half of 2007, prices grew only slightly, by 1.5% on average to the present average level of 81,000 baht/sqm.

"In addition, investors buying units with the intention to put them up for rent represent a large source of demand for condominiums in central Bangkok. As construction of more projects is completed, competition in the leasing market will further intensify. Many investors may achieve returns lower than expected as rents are being pressured downwards as more supply arrives on the market. As a result, potential condominium investors may take a more rational approach to purchasing. As such, we believe that the success of future projects will depend on the ability to meet end user needs, rather than those of investors," Mr Dan explains.

Competition strengthens in residential leasing market

Bangkok’s residential leasing market in the central business areas has remained active over the past six months with a continued influx of expatriates into Thailand. However, competition has strengthen considerably as new condo’s are completed and put onto the market.

Whilst large units, including penthouses, with four bedrooms are in high demand among from the families of senior management, smaller units are facing fierce competition due to fast growth of new supply.

As a result, condominium rents in central Bangkok have seen a remarkable drop compared to 2006. For example, a two bedroom type that was previously offered for rent at an average rate of Bt75,000 per month, is now achieving lower rents ranging between Bt55,000 and Bt65,000 per month, while the average monthly rent for smaller units of 70-80 sqm fell from Bt55,000 in 2006 to a range between Bt40,000 and Bt45,000.

Mrs. Daonum Verapong, Head of Residential Agency at Jones Lang LaSalle, said "Strong competition in the condominium rental market is pushing rents downwards. This is mainly due to continued amount of new condominium supply entering the market. Though demand remains strong, its growth cannot keep pace with new supply. On the other hand, large units with four bedrooms continue to enjoy strong rents averaging 180,000 baht per month as supply is limited. This trend will continue until the rental market reaches a new equilibrium."

There is a growing trend of detached housing developments entering the Bangkok residential leasing market. Several small housing estates in prime residential locations have recently been developed targeted at expats looking to rent. These projects were typically family-run and have been leasing well. This year, we have seen more housing developments by well-known developers entering this particular segment of the leasing market. In the most recent case, Jones Lang LaSalle was appointed by Property Perfect Plc to lease 10 luxury houses at Perfect Masterpiece Ekamai-Ramindra.

Outlook for the future

Economic growth within Bangkok is seriously going to affect the property market’s outlook over the next year. If the Thai economy continues to improve during the remainder of 2007 as expected by many given a more stable political situation, the Bangkok property will benefit. Improved consumer and investor confidence will encourage demand in both commercial and residential property sectors.