Based on the latest survey by CBRE Research, there is over 850,000 square metres of new office space under construction which is due for completion between Q4 2018 and Q4 2022 with more than half of the total supply under construction in the central business district (CBD). There is still over 1.7 million square metres of office space being planned. CBRE expects construction to start on more projects in 2019 which will increase the future supply completed in 2022 to be completed over 500,000 square metres.
According to Mr. Nithpat Tongpun, Head of Advisory & Transaction Services – Office, CBRE Thailand, the office market outlook remains the same with a steady level of demand growth of around 200,000 square metres per year and rents continuing to rise but at a slower rate until around 2022 when new supply will exceed demand. Co-working space has continued to become an emerging source of demand, especially in new Grade A office buildings, with 44,000 square metres of space leased over the last 18 months. As more co-working space is completed, this form of office will compete more directly with traditional office space and may reduce net take-up.
The Thai retail industry continued to recover following the moderate expansion of the economy. Consumer confidence grew, but the retail property sector still faces challenges from weak domestic consumption and due to the rapid transformation in global retail landscape. The retail sales index in August 2018, as estimated by the Bank of Thailand (BOT), was 275.22, representing a 17.74% increase from the same period last year. Thailand's Consumer Confidence Index (CCI) in August 2018 also increased by 9.73% from last year. Nonetheless, household debt remained high at 78% of total GDP, still affecting the spending power of local consumers.
The Thai retail industry is under intense competition from new retail supply and e-commerce. Based on a survey by CBRE Research, in 2018, 200,000 square metres of new retail supply in four major developments was launched including ICONSIAM, Gateway At Bangsue, the second IKEA at Central WestGate and The Marvel Experience Thailand at Mega Bangna. Despite the positive outlook on macro-economic indicators, many major retailers reported flat same-store-sales growth (SSSG) due to weak domestic consumption.
Looking ahead, the future supply if retail space in Thailand will continue to grow. As of Q3 2018, there was about 1.4 million square metres of under construction or planned space in Bangkok. With growing competition, the challenge for retail landlords is the ability to evolve from offering similar products and services to creating retail experiences that will meet customer's high expectations.
According to the Electronic Transactions Development Agency (ETDA), the value of Thailand's e-commerce market in 2018 is 3.06 trillion baht and, according to JD Central, the e-commerce market currently accounts for 3% of total retail sales which is expected to increase to 10% within five years. E-commerce in Thailand is growing faster than predicted, but still accounts for only about 2% to 3% of total retail sales, according to the Bank of Thailand.
"As a growing number of consumers prefer to use both online and offline channels, bricks-and-mortar retailers are being forced to adopt omni-channel strategies to integrate their physical stores and online shopping in order to create "experiential retail". This rapid transformation of the retail landscape means malls must innovate or die," said Ms. Jariya Thumtrongkitkul, Head of Advisory & Transaction Services – Retail, CBRE Thailand.
The Thai tourism market continued to grow steadily. China remains Thailand's largest feeder market accounting for around 30% of total international tourist arrivals. After the big increase in recent years of Chinese inbound visitors , the Thai hospitality industry is now bracing for a slowdown in growth from the Chinese market following the Phuket boat incident in July, which resulted in the drop of Chinese inbound arrivals by 8.8% Y-o-Y in Q3 2018. However, CBRE believes that Bangkok was less affected by this as the total number of international tourists disembarking at both Don Mueng Airport and Suvannabhumi International Airport has not declined from last year.
According to STR Global, the average occupancy in downtown Bangkok remained high since the beginning of the year and is currently at around 80%. Hoteliers had experienced many periods of record high occupancy in the past two years and are now more confident in raising room rates. In Q3 2018, Average Daily Rate (ADR) increase by 4.3% Y-o-Y while occupancy remained stable. Revenue per Available Room (RevPAR) also increased, showing a positive trend for the Bangkok hotel market.
By the end of 2018, there will be 46,800 keys in the Bangkok downtown market, increasing 4.6% from 2017. CBRE Research forecasts that there will be 11,000 more keys completed by 2022, based on announced developments. The total hotel supply in downtown Bangkok will then grow by 25% to around 58,000 keys, with most of the future supply in mid-range grade hotels. The challenge remains on winning back the Chinese tourists to respond to the large amount of incoming future hotel supply.
"Considering that Bangkok is the top overnight market tourist destination in the world, according to the Mastercard's 2018 Global Destination Cities Index, we optimistically expect to see healthy performance in the high-season of Q4 2018, driven by the end of year Christmas and New Year holiday," reported Mr. Atakawee Choosang, Head of Capital Markets - Hotels, CBRE Thailand.
Bank lending for real estate remains tight for both developers and buyers. Growing concerns about residential mortgage lending prompted the Bank of Thailand to reduce loan-to-value for second home mortgage to 80-90% and 70% for third home mortgage which will restrict speculators and investors in the property market. For property developers, the Thai banks' tight lending policies have driven Thai developers to source fund overseas through joint ventures. Since the beginning of 2018, there have been more than 15 major joint venture partnerships formed between Thai and foreign companies, at least 75% of the joint venture projects were formed with Japanese developers.
Ms. Kulwadee Sawangsri, Head of Capital Markets – Investment and Land, CBRE Thailand, added that there is still demand for prime freehold sites, but developers are being more selective and it is becoming harder for them to agree to the increased asking prices from vendors as the land prices are impacting the feasibility of projects. Some developers are shifting their focus towards leasehold lands, but they are only going to agree to 30-year or 50-year leases in a handful of locations where they think they can make a sufficient return during the lease term. Several property developers are diversifying their portfolios from built-to-sell residential projects towards built-to-hold income producing assets including serviced apartments, offices and hotels.