Primer Research Report Mandalay Property Market Highway to Mandalay. The city rises as a property investment destination. Accelerating success.

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1 Primer Research Report Mandalay Property Market 2015 Accelerating success. Highway to Mandalay The city rises as a property investment destination The famous poem by Rudyard Kipling immortalized the city, making the name Mandalay more recognisable than the place itself. That situation is now slowly being addressed since Myanmar started the reform process in Mandalay, the second largest city and the last royal capital of Myanmar, is regarded as the main commercial and economic hub in the northern region as well as a tourist destination. The city was founded in 1857 and eventually annexed by the British in In the 1990 s, the influx of Chinese from the Yunan province has led to the city s demographic diversification. Consequently, the strong presence of businessmen have contributed to the current economic robustness of the region. It serves as the main trading centre with China for the lucrative jade and other precious stones business which has, to some degree, allowed Mandalay to fair better during the sanctions of the last decade than the main commercial centre of Yangon. Now an emerging metropolis backed with a relatively wealthy population, Mandalay is beginning to attract both local and foreign investments. It is likely to play an important role as the main secondary commercial city in the country with its distinctive character and economy. Yangon Mandalay Mandalay is located 716 km north of Yangon and covers an area of 164 sq km. Based on the 2014 Census, the city has a population of million. It comprises of seven townships Aung Myay Tha Zan, Chan Aye Tha Zan, Maha Aung Myay, Chan Mya Tha Zi, Pyi Gyi Ta Gon Amarapura and Pathein Gyi. The lack of international quality developments amid strong demand prospects suggests that the real estate market in Mandalay is in a nascent stage, geared for expansion.

2 Mandalay property zones defined easier with well delineated townships Colliers International has zoned Mandalay City by grouping the townships into larger geographical clusters.»» The Inner City Zone comprises three townships and represents the main area for commercial expansion of the city. Situated to the north is Aung Mye Thar Zan, being home to Mandalay Palace, the amount of development is restricted. Nonetheless, retail shops and boutique hotels are largely present elsewhere in the general zone. Real estate development has grown further towards the south of Downtown. The southern part of the Inner City Zone, composed of Mahar Aung Mye and Chan Mya Thar Si townships, witnessed increasing number of landed residences and commercial establishments over the past years. Moreover, the first mixed-use development in Mandalay, set to complete in the near term, belongs to the Inner City Zone.»» The property and economic landscape in the Outer City Zone remains geared towards mostly industrial and agricultural activities. However, the eventual completion of the Asian Highway, along with vast availability of land plots; are of key interest to some investors keen to develop master-planned communities. The Outer City Zone contains Amarapura, Pyi Gyi Ta Gon and Pathein Gyi townships. At present, there is limited modern real estate development that clearly defines Mandalay s key city zones. This is most likely to change as the city further develops. High-rises limited in the whole of Mandalay Percentage of Households Living in Apartments and Condominiums by City Downtown Inner City Outer City Chan Aye Thar Zan Source: Colliers International Myanmar Aung Mye Thar Zan Mahar Aung Mye Chan Mya Thar Si Amarapura Pyigyitagon Pathein Gyi Unlike Yangon, Mandalay s central townships are well delineated with a block grid city layout. With common distinct features, the townships are further clustered into three major development zones:»» Chan Aye Thar Zan, classified as Downtown, is considered as the city s primary business district. The township s robust commercial and economic activity is reflected by the large presence of hotels, retail centres, and institutional establishments. The majority of Mandalay s property developments and businesses are presently concentrated in Downtown. Source: 2014 Myanmar Population and Housing Census, UNFPA; Colliers International Myanmar Mandalay compares to other secondary cities in terms of proportion of households living in high-rise properties rather than landed housing. Yangon s greater density together with the government policy to house civil servants in apartments in Naypyitaw, largely account for the higher numbers for largest commercial city as well as the capital, respectively. 2 Primer Research Report 2015 Mandalay Property Market

3 Condominiums are almost inexistent; landed residences remain preferred Supply Stock - Notable Condominium Developments The sales take-up for condominiums is modest, which ended at 53% in the first half of the year. Overall, private villas are the preferred residences given the vast availability of developable land and probably due to the reluctance to embrace the residential condominium concept. This occurrence is prevalent in the early stages of real estate development in Southeast Asia where high rises are perceived as affordable housing rather than a lifestyle choice. With the increasing popularity of integrated communities, gated residential villas reinforced with retail and other supporting components, are seen to be of high demand going forward. This is evident with the strong take-up rate witnessed in Mingalar Mandalay and Mann Akarit mixed-use projects. Still a lack of modern retail facilities; more is required Source: Colliers International Myanmar Yangon Vs. Mandalay Retail Stock The supply of notable condominiums in Mandalay is meagre, being solely represented by Mann Myanmar with 300 units. Completed in 2013, the development is the first notable condominium introduced in the market. While there were no new projects delivered since then, business interest in property investments are now beginning to surface. Over the past year, three new projects were launched, leading the stock to more than double by 2017, if completed on time. One of these projects includes Mingalar Mandalay Condominium in the Inner City Zone. Forming part of a 46-acre mixed-use development, the 12-storey two-tower condominium project is set to complete in a three-year span. Meanwhile, the rest of the condominium projects will rise as stand-alone developments. Source: Colliers International Myanmar Mandalay s retail space lags far behind Yangon. At present, the city offers only two shopping malls, namely Diamond Plaza and Ocean Super Centre. The latter, located in Mingalar Mandalay, is the most recently completed retail facility in the market. Both malls represent 25,700 sq m of leasable space. Meanwhile, shopping malls in the Outer City Zone are non-existent and department stores in the whole city is very limited. The condominium design parameters in Mandalay are comparable to Yangon s: the unit mix tends to favour the two to three-bedroom categories - representing close to 90% of the market; while the average unit sizes of most bedroom types are almost the same in both cities. Buyers tend to be in large extended families that require many bedrooms, while the foreign rental market, with demand for smaller units, is still in its infancy. In contrast, the average selling price is set relatively low in Mandalay, at a discount of approximately 30 to 50% to comparable condominium projects in Yangon. Despite the introduction of Ocean Supercentre, the city still lacks modern retail facilities. On the other hand, small-scale retail strips and shop houses continue to dominate the market. These local retail centres are considered poor in quality with the majority being seen in main thoroughfares such as along 73rd street in the Inner City Zone. 3 Primer Research Report 2015 Mandalay Property Market

4 Tourist arrivals to keep up with surging hotel supply With the country opening up, backed by political and economic reforms, the tourism and business interest in Mandalay have likewise strengthened over the recent years. The number of foreign arrivals reached more than 240,000 in 2014, a substantial increase of over 50% since With a tourism road map now being developed, coupled with the growing business interest in Mandalay and more airlift, the number is anticipated to further increase. However, despite the upward trend, the sudden rise in local hotel developments, could potentially outweigh the current demand, posing greater challenges for new hotel market entrants. Foreign Arrivals in Mandalay As at the end of H1 2015, the city-wide shopping mall occupancy rate was at 81%. Though Ocean Supercentre reached fullyoccupied level, the substantial vacant spaces in Diamond Plaza drove the overall rate down. Meanwhile, the average rental rate is almost on a par to Yangon at USD 20 per sq m monthly. Source: Ministry of Hotel and Tourism, Mandalay Data from the Ministry of Hotel and Tourism reveals that as at the end of 2014, there were 134 registered hotels in Mandalay, representing 5,933 keys in total. The number grew dramatically by 77% since The substantial increase in supply was mostly driven by the surge in local small-scale hotels in the past years comprising a large majority of the market. Given Mandalay s increasing urbanization coupled with the market s high purchasing capacity, an expansion in retail footprint should come as a welcome opportunity to many developers. At present, the city s total retail space versus the population is still considered low at 0.03 square metre per capita, despite being higher than Yangon s Nevertheless, smaller retail centres could be successful in Mandalay than Yangon due to easier traffic conditions and the widespread use of motorbikes allowing far greater mobility. In the long term, the demand for traditional retail spaces and shop houses is seen to be relatively strong. However, the introduction of quality shopping destinations will change the course of the market s buying patterns, eventually driving further growth in the sector. 4 Primer Research Report 2015 Mandalay Property Market

5 Supply Stock - Upper-scale Hotel Developments Commercial office market is untapped despite signs of growing demand Given the small presence of foreign companies in Mandalay, the demand for office space is characterized as domestically driven. As a result, many developers lack the incentive to construct proper office spaces which in fact is currently inexistent in the city. Source: Ministry of Hotel and Tourism, Mandalay On the other hand, the presence of upper-scale hotels remains thin. Completed in 1996, Mandalay Hill Resort was the first high-end hotel introduced. This was followed by Sedona Hotel the succeeding year with 247 keys. To date, the number of upper-scale hotels has grown to five with the addition of Rupar Mandalar Resort in 2005, Red Canal hotel in 2007 and Best Western Premier s Hotel Shwe Pyi Thar in Five new projects are currently under way including branded hotels Pullman by the Accor Group and Hilton; a 30-storey new hotel along 84th street in the Inner City Zone, and a 160-room hotel named the Prome Mandalay. Local offices come in retail units, shop houses or apartments, being largely present in both Downtown and the Inner City zones. The commercial demand for such office requirements seem high with many of these facilities being fully occupied. For instance, Shwe Phyu Plaza, initially constructed as a department store, is now fully leased out as an office space. The same has been observed among shop houses being utilized for both office and retail operations simultaneously. These alternative offices, considered low in quality and lacking proper utilities, charge rental rates between USD 8 and USD 24 per sq m per month. Meanwhile, some international firms have established a footprint with offices based mostly in hotels. Hotel landlords dictate as high as USD 60 per sq m per month for the use of these commercial spaces. As in many secondary cities in South East Asia the preference is for businesses to use such alternatives and it takes time for dedicated offices to play their part unlike in main commercial centres. In the near term, Mandalay is expected to have its first dedicated commercial office building to be located in the mixed-use development Mingalar Mandalay. 5 Primer Research Report 2015 Mandalay Property Market

6 502 offices in 67 countries on 6 continents billion in annual revenue billion square feet under management United States: 140 Canada: 31 Latin America: 24 Asia: 39 ANZ: 160 EMEA: 108 $ ,300 professionals and staff Adrian Soe Myint Analyst Research & Advisory +95 (0) Karlo Pobre Manager Research & Advisory +95 (0) karlo.pobre@colliers.com Tony Picon Managing Director Myanmar +95 (0) antony.picon@colliers.com Colliers International Myanmar Room No. B 803, 8/F., Tower B, Myawaddy Bank Luxury Complex, No. 151, War Dan Street, corner of Bogyoke Aung San Road, Lanmadaw Township, Yangon, Myanmar TEL +95 (0) Copyright 2015 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.