home and office markets more activity in Q3: study

Improvement seen; retail developers monitoring market closely before acting, says DTZ Debenham

Thailand’s residential and office markets have significantly improved, while most retail developers are monitoring the market situation closely prior to taking further steps, according to research by real-estate adviser DTZ Debenham Tie Leung (Thailand).

The study found that the condominium market was more active in the third quarter as a significant handful of new condominiums were launched in the central business district (CBD). Seven projects were launched for sale, accounting for some 2,462 units. The recorded number of new units launched in the third quarter alone exceeded market expectations, as the figure surpassed the total number of units launched in the whole of the first half.

This may be attributed to the more contained political situation over the past two or three months, which brought about regained confidence among both developers and home-buyers. To help boost purchasing activity, the government confirmed the extended transfer tax and specific business tax breaks till 2010.

It seems the market has gone through a phase of market correction, as prices of newly launched condominiums have increased quite significantly.

Average capital values for all grades of condominiums in the CBD stood at Bt82,250 per square metre at end of the third quarter, reflecting an increase of 0.7 per cent quarter on quarter. However, prices of selected new condominiums launched this quarter were able to attain premiums of 30 to 40 per cent over the overall CBD average, with prices ranging from Bt110,000 to Bt120,000 per square metre, the study found.

Average prime rents remained unchanged at Bt457 per square metre per month. The rental market was largely stagnant as the amount of newly completed condominiums coming on board exceeded the number of enquiries for rental property.

Only a handful of good-quality condominiums located in areas with good accessibility are able to achieve rents at a premium of 10 to 20 per cent above the market average.

The Bangkok residential market is expected to continue to see a steady increase in purchasing activity, barring any unforeseen disruptions on the political front. For the rest of the year, local buyers will dominate most condominium sale transactions as foreign buyers continue to adopt a “wait-and-see” attitude. In line with this, prices of new condominiums launched within the CBD irrespective of grade are expected to continue to move in an upward manner in the coming months, the study found.

Meanwhile, occupancy for prime offices registered a positive increase quarter on quarter after four quarters of consecutive decline. The average occupancy rate of prime office buildings across the CBD rose by 0.8 percentage point quarter on quarter to 85.8 per cent and was largely supported by strong occupancies recorded among newer prime buildings.

As there was no significant adverse event in the quarter to further erode business confidence, the number of office leasing enquiries started to pick up – particularly from local businesses.

Despite rising occupancies, average prime CBD rents continued to fall by a marginal 0.6 per cent quarter on quarter in the third quarter to Bt648 per square metre per month. Selected prime buildings within the core CBD are still maintaining strong rentals at approximately Bt650 to Bt700 per square metre per month. Landlords of selected prime buildings have come back stronger this quarter in terms of negotiation, narrowing the gap between asking and achieved rents, the study found.

Looking ahead, both rents and occupancy are likely to continue to be stable or record slight increases as business confidence is cautiously regained. Tenants may start to reassess their occupational strategies in the months ahead. The low level of potential supply coming onboard in the short term will aid in propelling leasing activity in the near future. It is unlikely that developers will start initiating new developments till there is significant evidence from market activity to justify this.

The third quarter was generally a healthy quarter for the retail sector. Leasing transactions improved in line with higher consumption activity. Part of the reason for this may have come from the reduction in political activity over the past two to three months. It is likely that the pent-up demand to spend will lead to a positive growth in retail activity in the coming months, the study found.

Although most landlords decided to maintain rents at a stable level in the third quarter, there is evidence to suggest that rents are bound to increase in midtown areas moving forward, in light of some potential pre-commitment negotiations just before the end of the quarter.

Average prime rents in the third quarter remained at Bt2,280 per square metre per month, just as rents for midtown areas held steady at Bt1,530.

Retail developers are likely to wait to see how the following quarter pans out prior to making any major new announcements. About 24,000 square metres of retail is expected to be completed in the next quarter, all of which will be in the downtown zone. Focal areas for new retail developments moving forward will continue to be in midtown and suburban locations where there is still room for expansion, the study found.

SOURCE: The Nation