Construction Roundup

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Future of suspended highrise property projects remain uncertain

Bangkok – 2 March 2004 / Despite the buoyancy in the real estate market, there are currently a large number of highrise property development projects left suspended. Whilst some of them have a potential to resume construction, it is expected that many will see no movement in the foreseeable future, says real estate service and investment management firm, Jones Lang LaSalle.

Ms. Benjawan Suewongprayoon, Head of Research at Jones Lang LaSalle, said “A large number of highrise property development projects were launched and completed in Bangkok from the property market peak in 1992. However, construction in many of these projects ceased when the economic crisis erupted in 1997. Whilst a number of them have resumed construction over the past recent years in response to improved market conditions, many of them have remained left unfinished since then.”

Jones Lang LaSalle’s latest study focused on the office sector in the Bangkok Metropolitan Area and residential sectors in Central Bangkok , including condominiums, apartments and serviced apartments. The findings show that there remain 48 highrise projects, whose construction had started and then has been put on hold from 1997 to present. The findings also indicate that the office and condominium sectors have seen the highest suspended supply, with 43 projects having stopped construction for more than five years.

While very few parties have explored the technical realities for these long-time skeleton buildings to resume construction, there are a number of issues that both developers considering restoring their projects and investors considering taking over suspended projects will need to take into account in terms of feasibility. For example, among highrise property projects that have been left unfinished for many years, it is highly possible that parts of the building structure and several built in systems that have already been installed may be damaged by the environment and due to the lack of maintenance. Replacing new systems can take more time and be more costly than installing the same systems in a new project. The potential marketability of the projects by the time when they will be completed is another key issue to consider.

However, it is expected that several more suspended projects will restore construction in the near future, not only because of the ongoing improvement in property market conditions but also because developers will potentially benefit from the fact that these projects may not be affected, due to historical permits, by tough regulations following the new town plan that will become effective later in this year.

Jones Lang LaSalle highlighted the potential future of suspended projects in the office and condominium sectors, which report the highest number of suspended projects in Bangkok .

27 office buildings left unfinished across Bangkok

At present there are 27 office developments left unfinished throughout Bangkok with a combined space of 576,900 sq.m, accounts for 8% of the total office space 7.02 million sq.m in Bangkok .

These do not include projects that have resumed construction over the past recent years. For example, construction of the 18,000-sq.m. Metha Complex was recovered in 2002 and was completed in last year. Central World Tower , formerly known as World Trade Tower project, was taken over by Central Pattana Plc, resumed construction in 2003. Upon completion by the end of this year, the building will offer 80,000 sq.m of prime office space.

There are also a number of highrise office development projects that had been suspended and then resumed construction for an alternative use. These include the 37,000-sq.m Piriya Tower , which was converted to a serviced apartment project and renamed as Ascott Sathorn; Raimon Tower to The Lakes, a new condominium project on Ratchadapisek Road ; the 43,000-sq.m Princess Tower to condominium project Baan Sathorn Chaopraya.. “At this stage, long-term developers may need to review this approach as residential property is available in abundance at present while the office sector will shortly be entering a phase dominated by under supply,” said Mr. Robert Collins, Head of Agency at Jones Lang LaSalle

“The Bangkok office market has bottomed out and is now in its early upturn stage where supply is becoming limited. Provided that there are no major economic surprises, we believe that office rentals will continue to rise and reach its peak again over the next 3-4 years before new supply will catch up with demand. And thus, it is the right time for developers to consider new office development projects now as construction from ground will take at least 3 years to complete on average. In fact, we know of some developers who are considering new office projects. The rising rents and the decline in vacancy make these developers consider starting a new project as they expect to benefit from a potentially high rental in the next three years when construction of the project completes.”

Mr. Collins’s statement was supported by Jones Lang LaSalle’s latest study which indicates that the Bangkok office market has improved gradually over the past two years, particularly in the grade A segment. Whilst the average vacancy rate of grade A office peaked in 1999 at about 40%, it has now dropped to the current level of only 18%. Rents also continue to improve as space has become limited. The average rental has risen by 8% from the bottom in 2001 to the current level of 420 baht/sq.m/month and is likely to increase further in response to the declining vacancy.

“With the positive outlook for the Bangkok office market, we expect more suspended projects to restore construction in the near future, particularly those that are over 80% completed and located in the CBD area, where development sites are limited and will become more scarce when the new town plan becomes effective later in this year. The new town plan will impose stiffer restrictions on new highrise development projects, and make it difficult for some land plots to achieve the buildable area at the 10:1 ratio,” said Mr. Collins.

Cranes have stopped moving on 16 condominium development projects in central Bangkok

In spite of extremely active construction and sales activities in the downtown condominium market, there are 18 condominium projects with combined 8,700 units left suspended in central Bangkok .

Jones Lang LaSalle’s study shows from 2001 to 2003, there were 59 new condominium projects with 6,800 units launched in central Bangkok , whilst only two suspended projects with more than 300 units, were restored and relaunched units for sale in the same period. Among them is Urbana Langsuan, whose construction had been suspended for 8 years and was restored in 2003. Another project is Lumpini Place WaterCliff, which was suspended during the economic crisis. The project recovered in 2003 and relaunched units for sale in the same year. The 600-unit River Heaven Charoenkrung, previously known as Chateau Chapraya, resumed costruction in 2003 and is planned for completion in 2004. The project has not yet officially launched units for sale.

The major factor that makes it difficult for suspended condominium projects to recover is the failure in debt restructuring, which is relatively more complicated than other types of property projects. The majority of units in suspended condominium projects were sold. When the projects were put off as the developers faced a financial crisis, purchasers of condominium units in those projects became creditors. “Dealing with a large number of creditors is not easy. The fact that only a small number of suspended condominium projects have recovered despite the favourable market conditions explains the case,” said Mr. Collins.

“We believe that many of these suspended condominium projects will not see construction recommence in the near future due to the complicated debt restructuring process. In addition, competition among newly launched condominium projects is becoming more and fiercer as a large number of units have been launched into the market over the past few years. And if supply in the market continues to grow at the current pace, we expect that the market may become saturated. Thus it may be too late for some suspended projects to resume construction by then. And some projects may be better converted for other use, if construction has not gone too far and the original design allows,” commented Mr. Collins.

According to Jones Lang LaSalle’s study, the average growth rate of newly launched supply in the condominium market in central Bangkok from 2001 to 2002 stood at 680 units per annum while the annual take-up in both completed and newly launched projects stood at 1,700 units per annum in the same period. Condominium supply increased sharply in last year with 5,500 units launched into the market whilst the take-up level was also strong with 5,400 units sold in both completed and newly launched projects. It is expected that a lot more units will be launched in this year as the success in sales of units in previously launched projects have attracted a lot of players into the market.

“While existing developers have continued to launch new projects, we have seen some new faces in the condominium market over the past 18 months. With a large number of newly launched units, sales rates in newly launched condominium projects have slowed down in 2003, compared to 2001 and 2002 when most projects reported 100% sales shortly after they were launched,” said Ms. Benjawan.

According to Jones Lang LaSalle, newly launched condominium projects, whose construction has not yet been completed, report an average sales rate of 64%.

About Jones Lang LaSalle

Jones Lang LaSalle is the world’s leading real estate services and investment management firm, operating across more than 100 markets around the globe. The company provides comprehensive integrated expertise, including management services, implementation services and investment management services on a local, regional and global level to owners, occupiers and investors. Jones Lang LaSalle is also the industry leader in property and corporate facility management services, with a portfolio of approximately 67 million sq.m under management worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse real estate investment management firms, with approximately US$23 billion of assets under management.

Jones Lang LaSalle has over 45 years of experience in Asia Pacific. The company has an established presence in the Asia Pacific region with operations in 26 markets and a total staff strength of over 1,800.

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