Bangkok Apartments | Bangkok Condos | Bangkok Serviced Apartments

RENTS HEAD FOR A LONG SLUMP

Office markets in the region are showing clear signs of falling rents, and Bangkok will not be spared A mid the stillness brought on by a wait-and-see attitude that now envelops the whole real estate market, a significant change is looming in the office segment, where rents are likely to slide over a longer stretch, says Robert Collins, managing director of Savills (Thailand). Office landlords so far seem to be paying little attention to international developments. For example, while office rents have dropped by 30% to 40% in Hong Kong and Singapore, in central Bangkok they have barely come down at all although they are not going up. Most grade A buildings are still maintaining rents at rates the market was looking at a year ago. On the other hand, relocations are extremely low right now and Savills has seen contractions with companies either not expanding or choosing to downsize and give up some office space. "So office landlords need to brace themselves for a downturn but the reality is they will understandably hold out for as long as possible," says Mr Collins. "So for the occupiers of office space there is not much relief in sight in the short term and that scenario is likely to become a sore point by mid point this year." Where the residential sector is concerned, Mr Collins said there is a lot of expectation from overseas buyers that prices will come down quite sharply but generally speaking they have yet to do so in the resort markets. This is partly because a lot of existing purchases have been made by cash buyers and the overall volume of villas is not really significant, certainly not amounting to hundreds of thousands of holiday homes. The key problem facing new and ongoing developments in major Thai resort towns is that the pool of buyers willing to pay prices more associated with 2007-08 levels is definitely shrinking. "Until we see a correction in terms of pricing expectation we are likely to see a prolonged period of very thin sales volume in the resort markets and that is what we are seeing today. So the number of active purchasers with cash or financing readily available is very thin." However, Samui differs from the other resorts because there is some degree of price trimming with quite large reductions at some developments and very minimal at others. But this has not yet started in Phuket and there is expectation that Thailand's largest resort island will face a correction in the short term. Where Bangkok is concerned, Mr Collins has observed that purchases have slowed significantly in the premium residential condominium sector with prices in excess of 300,000 baht a square metre. This level means that a 100-square-metre unit, which would have one or two bedrooms, would cost 30 million baht or more. This is close to US$1 million and domestically it is unlikely that there will be a sufficient number of buyers willing to buy such property at these steep prices in the next 18 to 24 months. "There is a possibility that some of the new developments that have been launched or are in the pipeline will either be scrapped completely or put on ice for the short to medium term." The good news is this change will help the take-up of existing supply. Although prices of completed property will slide, this is unlikely to be as much as 30-40% now occurring in Hong Kong and Singapore and more in the range of 15-20% but they would be shored up by the rental market because there is demand for well-located properties. "So the thinning of new supply will provide a much needed correction for the Bangkok CBD condominium sector which was certainly starting to develop a very unhealthy bubble." The current global economic slump does provide cash-rich buyers with a lot of opportunities because not only have prices dropped sharply in Hong Kong and Singapore, properties in the UK are also looking very attractive with prices having come off anything up to 40% even for investment-grade properties in central London. That British real estate is so attractively priced right now is partly due to the steep drop in the pound, which has also affected sales at Thai resort markets because Britons had been the leading buyers. Aside from Samui, Mr Collins said the buying opportunities in Thailand centred on Bangkok condominiums due for completion this year because the premium that end-users would have had to pay to speculators has eroded. "So that is a very significant buying opportunity and for Thailand it either will just stumble through under the radar and avoid much of the economic fallout that's taking place almost everywhere else or we face a scenario where it will just be a slow burn and the market will gradually, month by month, taper off a few percentage points. "In some respects it will be almost easier for the market to have a more of a short, sharp shock like we have seen in Hong Kong and Singapore and elsewhere to help it reboot much quicker." Mr Collins added that the trend for lower office rents will come into play as soon as one or two buildings cut rates but he does not think this market will crash because the occupancy level is still quite high and the volume of new space is very limited. "So we are not facing the 40% vacancy we had in 1999, that is not expected at all."

 

< Prev		Next >