Bangkok Property Market holds firm

The prime office sector was largely quiet as the anti-government rally paralysed most of Bangkok central business district (CBD) during the quarter. Business operations were affected on an on-and-off basis as pockets of unrest took place in the main office areas of Silom, Rajprasong and Chidlom. Many businesses had to seek temporary office spaces outside the CBD to ensure continued operations and staff safety.

Nevertheless, the average occupancy rate of CBD offices rose slightly by 0.7 percentage point to 87.5 per cent in second quarter 2010 against 86.8 per cent in the previous quarter. Lease renewals were the main driver of leasing activity during the quarter, according to a survey of DTZ Thailand Office agency.

Prime office rental rates in second quarter 2010 held firm at an average of Bt648 per sq m per month for the fourth consecutive quarter. The lack of activity due to the uncertainties surrounding the political rally put a halt to potential rental increases.

Amornrat Kiatkobchai, Senior Manager of DTZ Thailand, said “There may be spill-over effects from the April-May riots that are not reflected in the market immediately. These may only be seen in the future quarters as firms reassess their operation plans prior to lease expiry and readjust their business strategies taking into account politics as an additional risk factor.”

Demand for office space will continue to stem from local firms and foreign businesses which already have an established presence in Bangkok, as new major new demand is not foreseen until the political situation improves.

Retail

The Bangkok downtown retail sector was negatively affected by the arson activities which took place during the anti-government riots in May. Prime malls were closed for nearly eight weeks resulting in losses of over billions of Baht from lost sale revenue as well as from burning and looting activities.

In the downtown zone, both average occupancy rate and rental rate remained unchanged from the previous quarter at 94.2 per cent and Bt2,290 per sq m per month.

Midtown occupancy moved upwards as tenants which were affected by the closure of major downtown malls shifted to temporary space in midtown and fringe locations, lifting average occupancy from 93.2 per cent in the first quarter to 94.3 per cent in second quarter 2010.

Midtown rents stood at Bt1,560 per sq m per month, reflecting no change on a quarter-on-quarter basis and an increase of 2.0 per cent on a year-on-year (YOY) basis.

There was no new supply in both downtown and midtown areas in the quarter. Several shopping malls in both core and fringe areas were damaged by arson activity, the most prominent being Central World where the front portion Zen was burnt down. Rebuilding work will take approximately 12-14 months. The arson activities reduced total stock in second quarter 2010 for the downtown area to approximately 965,000 sq m and to 313,000 sq m for the midtown area.

Punnee Sritunyalucksana, Associate Director of DTZ Thailand Retail, commented that consumer activity has been quick to recover after the dispersion of the rally in mid May. Businesses are slowly regaining normalcy. Tenant sentiments have not waned as they have been spontaneous in adapting to the environment which they operate. The government and private sector have been quick to provide assistance by offering space and reduced rental rates to help affected tenants. Midtown rents are also likely to increase more than downtown rents in future, as the midtown area was not affected by the riots and retailers may find this an opportune time to move to the fringe areas where space is still available and an increasing number of developments is being initiated in this part of town.

Residential: Demand for affordable concept condominiums remains upbeat

Activity in the CBD residential sector waned with the disruption from the political riots which took place during the quarter. The majority of activity during the quarter was concentrated in peripheral fringe and suburban locations near to the mass transit lines. Demand for smaller 1-2 bedroom (40-70 sq m) affordable units which are usually priced below Bt80,000 per sq m remained upbeat despite the political woes.

The property tax break which was extended for a further two months at end March 2010 was again extended for another month until end of June 2010. This is a part of government initiatives to help spur property transactions which slowed down when violence broke out during the protests. So far, a handful of investors have already taken advantage of this tax incentive and transferred land and property units. It was recently announced by the Government that this will not be extended after its expiry in June.

CBD condominium rents averaged Bt452 per sq m per month in second quarter 2010 reflecting no change on quarter.

The overall average capital value for the CBD condominium market was also stable registering no change over the quarter to stand at Bt82,740 per sq m.

“New launches within the CBD will be very selective. With the uncertain political and economic conditions, developers are more cautious in initiating new projects. More time is being taken to conduct due diligence studies prior to launching a new project. Buying activity over the next quarter will largely be dominated by domestic purchasers-both end users and speculators. Foreign investors are likely to remain off the radar particularly for luxury projects until there is more certainty in the political situation,” said Low Ming Tze, Senior Manager of DTZ Thailand Research.

SOURCE: The Nation

 
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