Bangkok Rental Market

[robert10]

Below article from Nation quotes Colliers as saying that (Sukhumvit) occupancies at end of last year was above 90% in Bangkok. What's your view on occupancies going forward? How low might it go?

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Bangkok facing glut of apartments

Published on June 25, 2009

Supply builds as ongoing recession begins dragging tenancies down

Thailand's residential-leasing market is suffering from oversupply following the downsizing or closure of local operations by multinational firms in the face of the economic downturn, says real-estate services firm Colliers International Thailand.

As a result, most property developers who are building apartments and serviced apartments have slowed their construction to delay the completion of their projects until next year, managing director Patima Jeerapaet said yesterday.

Arnuj Rittichaiseri, associate director of Colliers' Residential Department, said many expats had been asked to lower their accommodation costs, and this had placed downward pressure on the upscale market. However, more affordable apartments in the middle market could benefit in the short term.

Many multinational companies are downsizing or closing local operations, or are planning to do so, in both the manufacturing and services sectors. The key Japanese market could be particularly badly affected by these developments, with a strong impact on the core Sukhumvit apartment market, she said.

The increasing number of new serviced apartments coming on to a market already hit by economic conditions will increase competition in the Sukhumvit area.

In the first quarter, 1,496 new expats arrived in Bangkok. However, the number of new work permits is expected to decline this year, and apartment occupancy rates in the first quarter fell to 73.1 per cent, 17.07 per cent below the peak in 2005, according to the company's head of research and advisory, Risinee Sarikaputra.

Slowing demand has pushed the average rental rate for grade-A serviced apartments down 4 per cent, from Bt1,256 per square metre per month to Bt1,210.

Average rental for grade-B serviced apartments fell 2 per cent in the first quarter, from Bt898 per square metre to Bt881.

Throughout this year, average rental per square metre is expected to fall 10 per cent for grade-B serviced apartments and 15 per cent for grade A.

Arnuj said the Bangkok apartment market appeared to be faring reasonably well towards the end of last year but that the first signs of a downturn were becoming evident then.

Despite the prospect of mounting job losses, it is reassuring that the Bangkok apartment market remains buoyant despite the move by some expats to cheaper accommodation. The present world economy - especially the weakness of the pound and several other currencies - is having an impact on accommodation budgets, and the turnover of people moving to lower their rent is noticeable, she said.

However, overall occupancy of apartments is high, with an average of 90.89 per cent at the end of last year. Grade-A occupancy was then 90.89 per cent and grade B 90.88 per cent.

Contrary to what might be expected, landlords were generally not giving deep discounts at the end of last year, because they were not yet feeling the pinch; the number of people moving out had not risen significantly. The average rental rate in the Bangkok expat-apartment market was Bt349 per square metre per month. The average rate for grade-A apartments was Bt457 per square metre per month and for grade B, Bt303, Risinee said.

New-apartment supply grew 5.6 per cent per year between 2003 and last year, whereas growth in the supply of serviced apartments this year is expected to be 23.4 per cent, a very sharp increase which will make this year a particularly challenging one for the industry, she said.

Colliers said Bangkok's apartment market [as distinct from serviced apartments] now had a total supply of 10,643 units. Of these 3,536 units, or 33 per cent, were grade-A apartments, and the remaining 67 per cent, or 7,107 units, were grade B.

New apartments expected to be completed next year will add 1,166 units.

Agency research showed the occupancy rate of grade-A apartments in the Sukhumvit Road area stood at 91.42 per cent at the end of last year, while 91.25 per cent of grade-B apartments in the same area were occupied.

Rental of grade-A apartments in the Sukhumvit area averaged Bt442 per square metre per month. This price saw the area ranked third after the Lumpini area and the central business district, including Phloenchit, Rama IV and Wireless roads. Average grade-A apartment rentals in these areas were Bt509 and Bt469 per square metre per month, respectively.

Despite high occupancy at the end of last year, prospects for this year appear less bright as local units of multinational firms face possible downsizing or closure, with the high-end and Japanese markets expected to show the first signs of weakness, the research said.

The agency's research found Bangkok's serviced-apartment market offered 12,722 units in 89 buildings at the end of last year, up 15 per cent from 2007. Nearly half of the supply at the end of last year, or 6,345 units, was located in the Sukhumvit area. Of these, 1,729 units were grade-A serviced apartments and the rest grade B.

New supply of serviced apartments, reaching the market between the start of this year and 2011, is expected to total 5,923 units. Most of these - 3,401 units - will be added to the market this year, the research said.

The percentage of customers staying long term (more than one month) stood at about 47 per cent of total demand last year. The main source of demand (53 per cent) came from the short-stay tourist and business markets, renting on a daily or weekly basis.

Colliers pointed out serviced apartments were increasingly competing head to head with the hotel sector.

Occupancy rates last year fell in both grade-A and -B serviced apartments, to 78.38 per cent and 77.35 per cent, respectively.

The average rental rate remained stable for grade A last year, at Bt1,256 per square metre per month, while the average rate for grade-B serviced apartments rose slightly, to Bt898 per square metre per month.

The research said serviced apartments recorded a drop in both occupancy and average rental rates in the first half of the year as the world economy continued to decline.

Some forecasts envisage first-half tourist arrivals in Bangkok falling 20-30 per cent, especially leisure groups, it said.

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[trogers]

I suspect the stats mentioned in their report lean towards the portfolio of properties managed by them, and do not reflect the general market. Note the emphasis on Sukhumvit, with no mention of locations like Sathorn, riverside, etc.