By Andrew Batt:
Bangkok’s property market has rebounded significantly following last year’s floods according to a new report published by CBRE Thailand.
Even the worst hit areas, such as low rise housing, retail and industrial areas that were inundated with water, have seen resumed activity. In the flooded areas, all retail centres have reopened, buying activity has resumed and factories have either reopened or are in the process of reopening.
In Bangkok’s single detached house and townhouse market, while developers are concentrating mostly on new launches in areas that were not flooded, CBRE has reported seeing new sales resuming in areas that were flooded, particularly for the low to middle-end market, but the high-end housing market is slowly recovering.
“We believe the desire of purchasers to own a house or townhouse close to future mass transit stations in the suburbs have continued as fears of a repeat flood are now alleviated. Demand for single-detached houses and townhouses will increase but this will be driven by affordability and the attractiveness of the product and location,” said Aliwassa Pathnadabutr, Managing Director of CBRE Thailand.
The prices of condominiums are rising due to higher land costs and construction costs. CBRE believes that for a fixed budget, the majority of the family market will consider townhouses in a good location several kilometres away from a mass transit station in the suburbs, rather than a one-bedroom condominium in the city which is at a similar price point. Nevertheless, there will be continued demand for small condominiums from singles, couples and weekday occupation by children attending central city schools and second home use.
In the luxury condominium market, demand is driven primarily by end-users and partly by buy-to-let investors who purchase with the potential for own use in the future. Record prices have been achieved for condominiums in the best locations and best-quality recently-completed projects.
CBRE has seen achieved sales prices in the region of THB160,000 to THB200,000 (S$6,474 to S$8.090) per sq m for individual units in completed luxury projects such as Q Langsuan, Saladaeng Residences, Athenee Residence and The Park Chidlom. The majority of the projects achieving this price level is located within the Lumpini area, one of Bangkok’s most prestigious address and expensive locations. CBRE believes condominium prices in the Sukhumvit area are also gradually moving up in line. However, prices in projects that are more than ten years old remain flat mainly because common areas have not been renovated which means they are significantly less attractive than new projects.
In the middle and entry-level markets, condominium prices have adjusted upwards, but to a lesser extent than the luxury market. There continues to be new project launches although the absorption rate is slower, compared to two years ago where many projects tended to sell out at launch. The top public listed developers dominate this segment of the market.
Condominium living is becoming more widely adopted and there is still potential demand particularly in densely populated areas where there has been limited development. Developers will face the challenges of identifying new opportunities in new locations as well as to sell out poorly performing projects before they are completed. The competition will remain fierce with a tendency to quickly over supply in a particular location.
Demand has also continued to improve in the office market. The overall vacancy rate was 13.86 percent compared to 14.13 percent in Q4 2011. The Grade-A CBD vacancy rate was 18.33 percent, down from 20.51 percent in Q4 2011. The higher vacancy rate for the Grade-A segment compared to the overall office market can be explained by the completion of two new Grade-A buildings – Park Ventures Ecoplex and Sathorn Square. Both buildings were completed last year with tenants just beginning to take occupation. The vacancy rates in both buildings will fall as tenants move in to take physical occupation. The majority of other Grade-A office buildings within the CBD are less than 10 percent vacant.
Tenants looking for Grade-A CBD offices actually have a surprisingly limited choice, particularly larger space users. CBRE expects that rents for the preferred buildings will continue to rise as there is very limited new supply before 2014.
In the retail sector, all shopping centres closed during the floods have reopened. Major shopping centres benefited from the V-shaped recovery in the economy. The retail sector has continued expanding both within the downtown and in suburban locations, with focus on large-scale retail malls such as Terminal 21 and Mega Bangna. The retail industry is beginning to evolve with projects becoming more focused on a unique concept and the industry being more lifestyle driven, catering to the needs of each target segment.
Small-scale first-time developers continue to build community malls. CBRE believes that not all of these will succeed, in many cases rental rates and occupancy will be lower than expected given a limited catchment area, therefore threatening the longer term viability of these projects.
In the industrial sector, CBRE is seeing factories reopen on the seven estates and parks that were affected by the floods. There have not been mass factory closures in these areas. Future expansion of existing companies and new investment is focused on the Eastern Seaboard, Saraburi and Nakhon Ratchasima areas.
CBRE expects that industrial estate developers could see another record year for industrial land plot sales and their challenge will be to supply enough plots where the infrastructure has been completed and all necessary permits are in place.
In the hospitality sector, there continues to be strong tourist arrivals. However, the total hotel supply continues to increase in Bangkok, putting pressure on occupancy and rates.
CBRE expects that hotel room supply will increase by 28 percent in Bangkok by 2014. Some hotel developers may face some difficulty in adhering to their loan repayments unless the cash flow is coming from another business line. Banks may start to tighten their lending criteria to the hotel sector which will restrict the amount of new supply that is being planned but it is not yet being built.
The serviced apartment sector performed better with occupancy and rates rising with the mix between long and daily rate guests providing more stability. Limited future supply of serviced apartments has improved prospects for the serviced apartment sector.
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