Q1 2011 SERVICED APARTMENT thailand Bangkok Serviced Apartment Market Bangkok Serviced Apartment Market Executive Summary The serviced apartment sector continued to show further signs of recovery from the lows of Q2 2010. Overall rental rates and occupancy were up q/q. It appears that the lingering effects of the April/May events of 2010 which directly impacted areas seems to be dissipating rapidly with Central Lumpini and Central CBD recording very positive figures for Q1 2011. market indicators Q4 2010/Q1 2011 new Supply RENTALS However this is no time for complacency as the sector faces another significant infusion of supply over the course of the year that will put pressure on the gains made over the past six months. The earthquake and tsunami in Japan may have a small short term negative influence, however in the longer term expected increased Japanese investment into Thailand will also positively affect the serviced apartment sector. Occupancy www.colliers.co.th
Historical Supply Historical supply by year In 2010 around 540 units were supplied to the market. Over the course of the previous decade the main surges occurred in odd years rather than even and this year is no exception. Even though no new serviced apartments began operation in Q1 2011 it is expected that around 1,770 will come online by the end of 2011 including the Centre Point at the new Terminal 21 complex with 500 units. Total supply of serviced apartment units as of the end of 2011 is expected to be approximately 18,200. Supply by location and grade, Q1 2011 The distribution of serviced apartments differs according to location, based on the particular profile of each area. Central Lumpini contains many large embassies and is therefore seen as being the most prestigious location to live in and as such contains more grade A units. Late Sukhumvit also contains more grade A units, due to the existence of a number of luxury branded apartments in Thong Lor Road, catering to the large Japanese community there. Early Sukhumvit is the king of grade B apartments, as it is a more unpretentious, relaxed location, which also explains the location of more Upper Scale rather than Luxury hotels. The Other areas contain more grade C products, due to their distance from the centre. COLLIERS INTERNATIONAL P. 2
Bangkok serviced apartment Market REPORT Q1 2011 Expected Future Supply in 2011 More than 1,700 units are scheduled to be completed in 2011. Despite this robust addition to supply to the market the highly competitive market conditions are leading to some projects being postponed, especially in the Sukhumvit area. 470 units in Late Sukhumvit area. The main driver is not only the popularity of this road as a residential destination but also that the relative price of land is lower than the more central locations and it is also convenient for the BTS line. Sukhumvit road will host the vast majority of new supply this year. More than 620 units will be located in Early Sukhumvit area and approximately COLLIERS INTERNATIONAL P. 3
Historical Occupancy Rate Occupancy for Bangkok serviced apartments on both extended stay and corporate housing sub-sets Average occupancy rates in Q2 tumbled due to the April and May protests, mainly as a result of short-term guests cancelling. The corporate housing subset also suffered with many expats, especially Japanese, leaving Thailand temporarily to escape from perceived danger. Although Q4 2010 produced mixed fortunes, the first quarter of 2011 was very encouraging for both grade A and B segments on the back of improved figures for tourism. Occupancy rates by location The positive news for Q1 2011 relates to robust recovery in the areas directly affected by the protests in April/May 2010, that is Central CBD and Central Lumpini. This is important as there were concerns that continuing occasional peaceful protests may still deter people from residing in these locations but these worries have clearly been abated. However in all zones occupancy recorded rise q/q and Late Sukhumvit continued to be the star performer, topping 80%. COLLIERS INTERNATIONAL P. 4
Demand Drivers Number of expatriates in Bangkok, Q1 2011 Source: Office of Foreign Workers Administration (Work Permit), Department of Employment of The Ministry of Labor and Colliers International Thailand Research Remark: Above information does not include Lao, Burmese and Cambodian citizens The number of expatriates in Bangkok still continues its upward trend following the nadir in Q2 2010. However the number is still similar to 2009 and below 2008 prior to the Global Financial Crisis (GFC).The total number of expatriates in Bangkok in Q1 2011 shows a modest rise q/q. Proportion of expatriates in Bangkok, Q1 2011 Source: Office of Foreign Workers Administration (Work Permit), Department of Employment of The Ministry of Labour and Colliers International Thailand Research The Japanese still represent the largest group of expatriates in Bangkok and are also the main target group for serviced apartments, with most staying along Sukhumvit road and its numerous sois. Other nationalities are often in the lower pay bracket and the rental rates of serviced apartments would be beyond reach. COLLIERS INTERNATIONAL P. 5
Rental Rate Rental Rate for One Bedroom Units by Location, 2010 2011 by Quarter Rentals rates continued their slight assent in Q1 2011 except the Southern Fringe which more or less flatlined and Central CBD which recorded another quarter of strong growth and has now reached the 100,000 baht per month barrier. The other key markets for high end serviced apartments, namely Early and Late Sukhumvit and Central Lumpini, are all bunched in the high 50,000 baht per month level. Although Late Sukhumvit is further out many high end newer branded apartments have appeared in the past few years raising the average rental price and the area is particularly popular with Japanese corporate housing residents. Rental Rate of Grade A and B by Room Type, Q1 2011 The average rental rate of grade A unit is greater than grade B by approximately 2 8%, depending on room type. COLLIERS INTERNATIONAL P. 6
SWOT Analysis Strengths The serviced apartment sector in Bangkok is very strong in terms of branding and overall quality of accommodation and facilities. Most of the top international brands have a presence and local names also provide a powerful underpinning for the market. overseas and this could be of benefit to Thailand. The Japanese provide the mainstay for the corporate housing segment of the market and further growth in expats living in Bangkok will directly benefit the serviced apartment sector. The sector competes strongly with hotels for the long stay market as well as corporate accommodation for expats, especially Japanese. A number of clusters of serviced apartments exist in various parts of the city and disruptions in one area mean that the other locations are able to provide back up accommodation. Most of the chains have apartments in these various locations. This was evident during the April/May events in 2010 and Late Sukhumvit benefitted as a result. Companies are continuing to consider the use of serviced apartments instead of hotels for their travelling employees as the use of kitchen facilities and more homely, informal atmosphere appeal to the jaded business traveler. They also remain cheaper and provide more room thus providing greater flexibility for use as a temporary office, for example. Weaknesses Significant new supply in the sector could lead to pricing pressures in the future as serviced apartments compete in a harsher competitive environment. Reliance on the Japanese market for the corporate housing subset makes the sector vulnerable to any large scale disruption involving Japan. The recent earthquake and fears of a direct hit on Tokyo sometime in the future have highlighted such concerns. Opportunities The development of trade within ASEAN and between ASEAN and large economies such as India and China could spell a boom both in the corporate hosing and long stay sectors. Many expats like to stay is serviced apartments in the initial period of their stay before moving to lower cost apartments for lease. Limited new supply of expatriate high end apartment for lease buildings means that serviced apartments can continue to compete successfully in the corporate housing sector. Threats A resumption of disturbances in the centre around the election period could cause the fragile recovery in occupancy to fall again in those areas likely to be affected such as Lumpini. Increasing cost pressures are causing companies to scale down the accommodation provided to their expat staff thus threatening the higher end apartments. The earthquake and tsunami in Japan is likely to lead to a drop in the number of arrivals from that country in the short term. However it is expected that more industrial activity will eventually shift from Japan top COLLIERS INTERNATIONAL P. 7
APPENDIX COLLIERS INTERNATIONAL P. 8
Grading No recognized standard for rating serviced apartments exists in Thailand and therefore Colliers International Thailand has classified them based on various criteria, ofwhich a summary is given below. Grade A Located in prime locations and luxury residential areas. Furnished to an exceptionally high standard. Offering recreational facilities and amenities similar to a Luxury or Upper Scale hotel. Managed by a top international branded operator or comparable local brand. Grade B Usually located in the centre but also in less prime locations. Furnished to a high standard but usually offers recreational facilities and a variety of services similar to an Upper or Mid Scale hotel. Managed by a lowerend international or domestic operator. Grade C Located in secondary locations. Furnished to a comfortable, but not luxurious, standard. Fewer provisions of facilities and amenities, similar to that of a Mid-scale or Economy hotel. Zoning The serviced apartment area can be divided into five areas or pockets of concentration: Central CBD This is the area that encompasses Silom, Sathorn, Surawong, Si Phraya and Rama 4 Road, as well as other sois in between, such as Soi Saladaeng, Soi Convent, Soi Pipat. Central Lumpini Area The Central Lumpini covers the areas along Rama I, Rajadamri, Wireless, Ploenchit, Langsuan, Phayathai and Phetchaburi Roads, as well as other sois in between, such as Soi Langsuan and Soi Ruamrudee. Late Sukhumvit Area This is the section of Sukhumvit Road between Soi 37 and Soi 77 to the north and Soi 24 and Soi 50 to the south. Southern Fringe Area This is the area that stretches along the bank of the Chao Phraya River on Charoenkrung Road. Narathiwas Ratchanakarin Road and Rama III Road are located in this area. Other Areas Most of the remaining Grade B & C serviced apartments are scattered across the city, including Phayathai, Phetchaburi, Ratchadapisek, Mitmaitri, Srinakarin Bangna and Ramkhamhaeng Road. Early Sukhumvit Area This is the section of Sukhumvit Road between Soi 1 and Soi 35 to the north and Soi 2 and Soi 24 to the south. COLLIERS INTERNATIONAL P. 9
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