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As you can see from the picture it’s not a prime property and anyone familiar with Hong Kong would know that Lockhart Road is a secondary retail location.

In Thai terms it equates to 120 million baht for 21.4 square wah site that’s 5.6 million baht per square wah for a site no bigger than a medium size townhouse. The Highest land price recorded in Bangkok   as far as we are aware is 1.2 million baht per square wah for a prime location.

2010 has begun with a more positive market sentiment. The improving economic outlook globally and perception of Thailand’s political situation, together with low market prices compared to other mature property markets, have had a positive impact on consumer confidence in property investment in Thailand.

Following the economic crisis, the supply of new office, retail and industrial space is at an all-time low. These sectors are expected to improve this year, in line with the global and local economic recovery.

Thailand’s residential market in 2009 was primarily driven by local demand. This year, CBRE believes that local demand will continue to be strong and that individual foreign property investors will start to return to the market. Thai condominium prices remain attractive compared to other cities in the region, such as Shanghai, Hong Kong and Singapore where prices have risen sharply in the last six months.

Average Price of Luxury Residential Units in the Region (THB per sq.m.)

However, there are continuing concerns about Thailand’s political stability and the strength of the global economy.  If Thailand’s economy and politics are stable in 2010, the residential sector will see consistent positive growth.

Government Policy

The Government stimulus package will expire in March 2010 and it remains uncertain whether it will be extended.  CBRE believes the extension of this package will benefit buyers and developers of large condominium projects launched during the crisis which are due for completion and transfer within this year.

The initiative of this government to reform property and land taxation with a view to creating fairness sounds positive, but it will only be possible to determine the effect on the property market once the details of the proposed legislation have been finalised. “So long as the new tax legislation is on a fair basis and the tax rate not so excessively high as to discourage investment, CBRE sees this reform as beneficial for the market,“ Ms. Aliwassa Pathnadabutr, Managing Director of CBRE Thailand said. An additional measure that CBRE urges the government to consider is the extension of the long lease term from the current 30 years up to a maximum of 90 years. This will help improve the market mechanism and make large-scale commercial projects viable which would not be feasible if such developments were freehold due to the high land cost or if they were on a 30-year lease due to the limits on lease terms. The extension of the lease term will also have a direct benefit for resort destinations such as Phuket and Samui where the property markets are primarily driven by foreign demand.

Looking at 2010 and beyond, environmental issues are a key consideration for all industries including the property market. There will be more restrictions which may increase the cost for developers. The Environmental Impact Assessment (EIA) process is one of the key concerns and risks for developers as there are uncertainties in the details and timing required to obtain such a permit. This is one of the factors which are likely to delay the emergence of new supply.

Any additional incentives that would attract foreign direct investment in both manufacturing and the service industries would be welcomed, in order to enable Thailand to compete with rival destinations.

Office : The Market Should Improve in 2010

Bright future due to limited new supply

In 2010, there will be very limited new supply in the office sector.  Only 78,380 sq.m. are due to be completed, including Sathorn Square (72,500 sq.m.) and Sivatel Wireless Road (5,880 sq.m.). CBRE sees the limited increase in new supply as a positive indicator for the office market because any increase in take-up will reduce vacancy rates and lead to rental increases. At the end of 2009 the vacancy rate stood at 12%.

Even though net demand in 2009 dropped by more than 50 % to only 52,000 sq.m., average grade A CBD office rents fell by 7.26% to THB 690 per sq.m while grade B CBD office rents fell by 12% to THB 509 per sq.m.  This is considerably better than in other markets.  Rents fell by 52.6% in Singapore and 49.9% in Hong Kong in 2009.

Average Grade A CBD Office Rents in the Region (THB per sq.m.)

Following the recovery of the global economic, CBRE believes that companies will be less cost conscious and that 2010 will be a good time to take advantage of the low rents to relocate to newer buildings.

Sathorn Square – the only new grade A office building to be completed in 2010.

Condominium : The Most Exciting and the Most Competitive

Supply Outlook : More competitive market in 2010

The total supply of downtown condominiums increased to 61,522 units by the end of Q3 2009, up 14% year-on-year. In total, there are 17,664 units under construction in downtown Bangkok, of which 78% of which have been reportedly sold, leaving 3,879 units being marketed (completed and under construction).

In 2009, there were 3,912 units in 15 projects launched in the downtown area, with the majority being one-bedroom unit types. In 2010 CBRE expects a much more competitive market, with an increasing number of project launches as there is pent-up supply from developers who have delayed their projects since the onset of the economic crisis in late 2008 and also new supply from large developers who acquire plots of land for new developments.

Newly Launched Condominium Projects* Broken Down by Unit Type

Demand Outlook : Demand continues to be strong

CBRE sees a growing demand for condominiums driven primarily by a change in lifestyle which has led to the need to own a first or second home in the CBD or near mass transit routes to reduce the need to commute.  From an investment perspective, investors also increasingly recognise condominium purchases as an appreciating long-term investment asset. In the past, there were few Thai investors in the market. However, with lower interest rates and proven returns, investing in condominiums has become a popular investment choice for many Thais. It is also considered a safe and secure investment compared to the equities market which is much more volatile.

New Trends : Good locations, small furnished units with affordable prices

From the development side, developers need to ensure they are ahead of the game in trying to predict future location trends. The danger is that a popular location can quickly become saturated with new supply. The key to success is either to be the first to launch in an upcoming location, or to find a location with high barriers to entry.

New supply especially for the middle income market will focus on smaller units at affordable prices. In a competitive market with experienced buyers, products must offer quality as well as innovative and functional design in order to be successful. The reliability and reputation of the developer is another key consideration for buyers.

Luxury and Super Luxury Segments :  Limited future supply

The luxury and super luxury condominium segment is expected to slowly recover and develop into a niche market. Prime downtown land is rarely available for sale and prices will remain high, CBRE, therefore, does not expect many new launches for luxury condominiums in prime downtown locations.

With a wave of new launches focusing on smaller one-bedroom units along mass transit routes with prices ranging from THB 3 to 8 million, the majority of unsold two to three-bedroom units priced at over THB 15 million and developed before the crisis should soon be absorbed.  There will then be a shortage of two-bedroom units in the luxury market especially in prime locations. Short-term investors will speculate on one-bedroom units whereas long-term investors will focus on two and three bedroom units which are in demand among expatriates in the rental market, while smaller units are driven by local demand. With a limited supply of newly launched larger units CBRE believes the existing supply of such grade-A units in prime locations will continue to appreciate in value.

2010 Pricing Trends : Completed prime condo prices on the rise

In terms of price movement, CBRE sees no significant increase in prices per sq.m for mid-market condominiums as the economic recovery is still underway with the prevailing political problems which continue to concern buyers. The best selling segment is priced at THB 50,000 – 80,000 per sq.m in mid-town locations or within 15 kilometres of the CBD. Prices in this segment are unlikely to increase as the purchasing power of the target market is limited.  The developers have to compete on cost control and pricing.

Prices for completed high-end and luxury downtown condominium have increased slightly by 5.6% from THB 117,875 per sq.m from Q4 2008 to THB 124,539 per sq.m in Q3 2009 and CBRE believes that the prices of completed buildings in prime locations will continue to rise in 2010.

Prices of the future supply of high-end and luxury downtown condominium in 2009 fell slightly by 6.3% from THB 142,133 per sq.m in Q4 2008 to THB 133,134 per sq.m in Q3, 2009 due to the slow market conditions. New launches in 2010 are likely to see an increase in price per sq.m due to the higher construction costs but, as unit sizes are smaller, total unit prices will be on par with current levels.

Retail : More Focus

Improvement expected following return of consumer confidence

In the first three quarters of 2009, the supply of retail space grew by 6.6% or 327,125 sq.m. Whilst occupancy was stable throughout the year, rents were flat and even fell in some cases during the earlier part of 2009. The fourth quarter showed signs of consumer confidence and spending returning.

The trend for new retail centres in Bangkok is evolving from one-stop mega shopping complexes to more focused community malls and medium-sized lifestyle and entertainment complexes such as Esplanade Rattanathibet.

The major players in the retail market are Central, The Mall, Siam Future and Major Cineplex.  Retail developments to note this year are Terminal 21 which is currently under construction and located in Sukhumvit at the Asoke junction, Central Rama 9 and Mega Bangna which will house Thailand’s first IKEA store.

Serviced Apartments : Highly Competitive

Occupancy rates are likely to be flat and downward pressure on rents

The serviced apartment sector, which partially depends on tourists and business travellers as well as expatriates working in Bangkok, has suffered from growing supply which led to an overall drop in occupancy and rates in 2009.

Total supply increased to 12,392 units, up by 6.84% year-on-year, with a further 610 units expected to be completed by 2010 and approximately 2,000 units by 2013. Occupancy rates remained at 75% in Q3 2009. Occupancy was partly protected by a number of long-term contracts which are less volatile than the daily rate market. Average rates, however, fell by about 20% year-on-year.

The biggest challenge faced by this sector is the volume of new supply targeting both long-stay expatriates and short-stay businessmen and tourists.

Serviced apartments compete against apartments and particularly small condominium units for rent in the long-stay market and the rapidly growing supply of hotels in the short-stay market. The influx of new supply of both serviced apartments and hotels will continue to exert a downward pressure on both rates and occupancy.

Expatriate Rental Apartments

The total supply of expatriate-standard rental apartments in Bangkok increased to around 11,151 units, up by 4.5% year-on-year

Occupancy remained high at 91%. CBRE has not seen a dramatic drop in the number of expatriates in 2009 but, since companies are trying to maintain or reduce costs, so CBRE does not expect any increase in housing allowances.

Multinational companies continue to be cautious on their expansion plans given that the global economy is yet to fully recover. Thailand’s political problems are also an added factor which has restrained business expansion plans in Thailand.

CBRE does not expect that there will be a significant increase in the number of expatriates in 2010. There will be increased competition from individual “buy-to-rent” condominium owners seeking to lease out units in recently completed developments.  There are about 620 apartment units under construction but there are also 17,664 condominium units under construction and CBRE expects that up to 50% of the new condominiums have been bought by purchasers who want to lease out their units on completion. This increase in supply combined with little or no growth in demand will dampen any potential for overall rental growth.

New well-designed condominium and apartment buildings will continue to perform better than older buildings that have not been refurbished or redecorated.

Although there is still downward pressure on rents, retail rents slightly increased in line with the economic recovery. The Consumer Confidence Index (CCI) and retail sales both saw an increase in Q3. Overall, there are signs of improvement in the retail sector, however continued improvement will depend on the speed of global and local economic recovery coupled with a stabilized political environment.

Bangkok’s total retail space stood at 5.26 million sqm. Supply increased in both downtown and suburban areas, while there was no new supply in the midtown area during the quarter. The shopping mall format accounted for the highest percentage of total supply, with 53.3% of total retail space. There were three new retail centers completed in this quarter, with a total area of 36,604 sqm. Only Digital Gateway was located in the downtown area. Retail occupancy increased slightly to 92.4%, with suburban areas recorded the highest take-up.

Outlook

New shopping experiences and new formats are also being introduced into the market. These things force the key players to constantly reassess their approaches in order to stay strong in the ever-changing environment. Several new mixed-use projects with retail podiums are also planned; maximizing rentals may prove difficult without the presence of an anchor tenant.

Developers continue planning to build community centres, which rely on having a supermarket as an anchor tenant. The problem is that some of the main supermarket operators, such as Tops and Tesco Lotus, are also developers themselves. Therefore, they normally choose to anchor on their own developments rather than leasing from third party developers.
Retail Rates – Q3 – 2009 (full report)

CBRE’s latest research report examines the current attitudes and 2010 expansion plans of 220 leading retailers, based on interviews conducted over the summer of 2009.

Despite the uncertain economic outlook, many retailers are optimistic about the next few years and are strategically expanding into new markets. Whilst the research has shown a broad shift towards the more mature Western European markets and prime locations, some retailers are taking the opposite approach and are targeting new and previously untried markets in their search for competitive advantage. A total of 56 countries were identified as expansion targets by the 200 retailers who are actively looking to acquire stores by the end of 2010. Western European countries dominated the survey’s ranking of the top 10 ‘hot spots’ for expansion, comprising seven of the 10 most popular destinations. Poland, Romania and Russia were the exception to the rule, representing Central and Eastern Europe in the top 10. More than 45% of retailers are planning to expand into at least one country within Central and Eastern Europe in 2010, with Poland alone attracting 34% of the retailers surveyed.

Although many of the smaller European markets ranked quite low at individual country level, grouping them together by region reveals an alternative geographic perspective: 42% of retailers are looking to acquire one or more stores in Southern Europe; and 24% of retailers are looking to target one or more countries within the Middle East and North Africa (MENA) region; although much of the MENA interest is focussed on the main UAE markets, with fewer than 20% of retailers looking at markets outside the Emirates. For some retailers, “first to market” remains the over-riding objective and retailers are using the current economic conditions to move into markets which previously would not have been accessible. The acquisition of weaker competition and more affordable real estate are enabling retailers to expand into new markets.

On average, of the 200 retailers who are looking to expand, 73 of retailers (36.5%) are looking to open more than 10 stores by the end of 2010, with 25 retailers (12.5%) seizing the opportunity offered by the current market to expand more aggressively, opening 40 or more stores over the coming year. At the other end of the scale, 40% of retailers are planning to acquire no more than five stores in 2010.

Peter Gold, Head of EMEA Cross Border Retail, CB Richard Ellis, commented: “After a turbulent 18 months in the financial markets which continues to affect the world and the retail sector, it is evident that most retailers are opting for a ‘flight to quality’, returning to the mature and dominant Western European markets which have returned to prominence as some emerging European economies falter. Some retailers are using this opportunity to strategically position themselves for a future upturn in consumer activity in the years ahead. Others are taking the view that they should ‘stay calm and carry on’; if business remains solid and the fundamentals haven’t changed, they will continue to move into new markets.

“The combination of difficult market conditions and new supplies of retail space is playing a fundamental part in the shift of balance we are witnessing between landlords and retailers. Retailers’ expectations have probably never been higher and landlords need to acclimatise to the new environment, resulting in landlord and retailers working more closely together. ”

The survey also revealed that the retail sector planning the greatest expansion in 2010 is the grocery, food and beverage retailers, with over 40% looking to acquire more than 30 stores by the end of 2010. This is a trend being replicated among specialist clothing retailers, with over 30% looking to open 30 or more stores. This finding could have been influenced by the fact that in some markets, landlords with vacant units are specifically targeting grocery chains, offering attractive terms in an attempt to draw them into shopping centres, where historically these retailers have operated in standalone stores.

Source: CB Richard Ellis