CBRE: Property remains prime investment during downturn

Construction News

The office market and upmarket residential developments will continue to be good investments this year due to limited supply and strong demand amid the sluggish economy and rising asset prices, according to property consultant CBRE (Thailand).

Aliwassa Pathnadabutr, CBRE’s managing director, said despite the overall sluggishness of the Thai economy, property prices would keep rising, particularly for land plots in prime locations like the central business district (CBD).

“Land prices in the CBD will once again set a new record this year,” she said. “We may see 2 million baht per square wah within the first half of this year after, after a previous 1.9 million baht record was set near the Chit Lom skytrain station in 2015, preceded by a 1.7 million baht record near Nana skytrain station in 2014.”

Land prices in Bangkok have increased 13-15% per year on average, led by the Phloenchit-Lumpini area, where prices rose 567% during 2002-15. The second largest increase was in the Silom-Sathon area, where prices increased 556%, followed by the Sukhumvit area, which saw a 428% rise during this period.

The rise in land prices in prime locations was driven by condominium development. CBRE expects prices of new condominiums in prime downtown locations will rise to over 300,000 baht per sq metre.

Ms Aliwassa said high-end condos will remain a good investment during the slowdown, with the falling stock market pushing investors to brick and mortar assets like condos.

The majority of luxury buyers were and continue to be Thai, who accounted for 80% of buyers, while foreign purchasers were mostly from Asian countries like China, Japan and Taiwan.

CBRE also closed sales of a few new, single-detached houses priced at 50 million baht each in the Ratchadapisek area to buyers from the Middle East.

In 2015, CBRE sold 790 residential units worth a combined 21 billion baht, up from 17 billion baht in 2014. Of that amount, 80% were from off-plan projects and 20% were resale units.

Ms Aliwassa said commercial property was another good area for investment, although high land prices are a key barrier to office development amid the current global economic outlook.

The e-commerce boom provides another opportunity for the office and logistics market. Last year demand for office space from 10 companies totalled 20,000 sq m, which accounted for 10% of the  200,000 sq m total. The trend will continue this year and next.

“Strong growth in the e-commerce sector will create new trends in the office sector, like use of a column-free floor plate for flexibility [in open-plan offices]. It also affects the retail sector, which needs to go to online shopping platforms and boost demand in logistics and warehousing,” said Ms Aliwassa.

While the overall vacancy rate in the office sector was below 10% — the lowest level on the past 20 years — monthly rental rates will continue rising to 921 baht per sq m this year, up 5% from 877 baht in 2015.

“The growth in online shopping pushed retail developers of existing and planned shopping malls to offer customers new experiences, as consumers now go to shopping malls for the food, entertainment, product research, and overall experience. With this shift, retail developers should revise their merchandise and tenant mix,” Ms Aliwassa said.

She added that amid lower domestic consumption, tourism will help the retail sector.

Ms Aliwassa further noted that a year-on-year decline of 44% in foreign direct investment in the manufacturing sector in the first nine months of last year had had an impact on demand in serviced industrial land plots and ready-built factories. The trend of lower demand will continue in 2016.