Property Investment Rockets to B112bn in Q2

03 Aug, 2017

Thailand's property investment in the second quarter topped 112 billion baht, driven by two transactions worth a combined 59 billion baht by billionaire Charoen Sirivadhanabhakdi's TCC Group that bought properties back from the funds.
According to property consultant Edmund Tie & Co Thailand, the largest deal in the second quarter was an asset sale and leasehold transfer of the Thai Hotel Investment Freehold and Leasehold Property Fund, valued at 30 billion baht. The buyer was TCC Hotel Asset Management Co Ltd, one of TCC Group's subsidiaries.

The properties comprise 12 hotels -- six in Bangkok, four in Samui and one each in Phuket and Chiang Mai. The fund was managed by Krungthai Asset anagement Plc. The second-largest deal was also by one of TCC Group's subsidiaries, TCC Commercial Property Management Co, which spent around 29 billion baht to buy assets from the Thai Commercial Investment Freehold and Leasehold Fund. The value of the assets transferred was worth around 29 billion, which comprised Empire Tower worth 15.3 billion baht, CyberWorld Tower worth 5.88 billion baht, Athenee Tower worth 2.86 billion baht, Interlink Tower, formerly named Nation Tower, worth 1.97 billion baht and 208 Wireless Road Building worth 1.07 billion baht.

TCC Group's two deals boosted total investment sales volume in the second quarter from only 19.9 billion baht in the first quarter 2017 and only 7.8 billion baht in the second quarter of last year. Second-quarter volume was also the largest since the first quarter last year when total investment sales volume was 125.58 billion baht. The key driver in the first quarter last year was a takeover of Big C Supercenter Plc, also by TCC Group, with 122 billion baht.

According to Edmund Tie, investment market in Thailand is traditionally dominated by national companies but when foreign companies do invest into Thailand, they are typically involved in significant investments. Carlton Hotel Bangkok Investment Pte Ltd, headquartered in Singapore, was involved in the purchase of a 2.5-rai plot and a partially completed hotel on Sukhumvit 27 for 2.5 billion baht. Thai companies were also active in the second quarter, with SET-listed developer Ananda Development Plc entering a joint investment with Mitsui Fudosan Asia Thailand, which is under Mitsui Fudosan Co, Ltd.

Mitsui Fudosan is one of the largest and most active companies in the real estate development industry in Japan. The joint investment amounted to 2 billion baht. Nusasiri Plc was also active due to its plans to invest and increase share capital in Panacee Medical Hong Kong Limited, worth 352 million baht.Foreign investors from key markets such as Japan, Hong Kong, Singapore and other Asean countries will continue to play an important role in Thailand's property market. In the second quarter, international companies investing in Thailand were limited to a single transaction. According to Edward Tie, this is not a reflection on the number of multinational investors considering real estate assets in Thailand, but rather a symptom of the restrictions on foreign buyers.

Edmund Tie expects to see continued interest from other Asia-Pacific countries while a number of Thai investors will continue explore options in overseas markets. It also expects to see national investors continue to dominate the market in Thailand while restrictions on how foreign companies can invest in Thailand persist. In office sector in the second quarter, there was one new office completion, Gaysorn Office Tower II, in the central business district (CBD). It is a grade A office building close to Rama I and Ratchadamri Road and offers retail accommodation and modern office space. As a result, office stock increased by 27,000 square metres in the first quarter, making the total supply 1.83 million sq m in the second quarter.

Future developments scheduled for completion in the CBD include Singha Complex (50,596 sq m, 2018), The Aspiration One (30,000 sq m, 2019) and Bhiraj Sathorn 15 (30,000 sq m, 2020). Office take-up in the CBD dipped slightly in the second quarter. While total take-up of space improved from the first quarter, prime office net absorption was still in negative territory with the introduction of more office space. This continued negative absorption meant that overall occupancy level decreased to 89.02%, compared to 90.3% and 90% in the first quarter 2017 and the second quarter 2016 respectively. The total retail stock in the downtown accounted for 1.34 million sq m in the second quarter 2017. There were four retail completions in the quarter, of which three were in downtown and one in midtown. There was 12,513 sq m of new supply in downtown and 6,311 sq m was built in midtown. Retail supply in downtown is limited until the end of 2017 as the next project is only set for completion in the first quarter 2018.

The total retail stock in the midtown market accounted for 898,050 sq m, increasing by 2.2% on a year-on-year basis. Average occupancy levels in the downtown in the second quarter remained unchanged at 92.7% from the first quarter 2017 despite the new supply. The occupancy increased by 0.6% year-on-year. The average occupancy rates for retail space at midtown stayed at 89.8% in the second quarter of 2017, but decreased from 90.5% in the second quarter of 2016. Average retail rent in the downtown are remained the same at 2,600 baht per sq m per month.  

However, retail rent declined by 1.14% on year-on-year. In the midtown area, retail rents also remained stable at 1,590 baht per sq m per month. The rental level has not changed since the fourth quarter 2015 and there is little evidence to suggest that the rents will trend upwards in the second half this year. Retail developments in the midtown market that are due to be completed in 2017 are all part of either office or residential mixed-use projects. In the third quarter 2017, a total of 2,130 sq m of retail space from two new retail projects are expected to be completed. The first project is Ari Hills on Phahon Yothin Road, comprising 1,500 sq m of retail space for lease. 

The other project is Ladprao Hills, located near Phahon Yothin subway station. This building will have a modest net lettable area of only 630 sq m. IconSiam continues to draw attention as its construction continues. Once completed, its two sections, the department store and the shopping mall should deliver 87,500 sq m of new retail space to the midtown. The prospects for the retail market remain stable but offer little opportunity for landlords to push up rents and Edmund Tie continues to see projects like EmSphere and the Bangkok Mall being postponed by developers. 

Growth remains modest as the market has static occupancy rates for both downtown and midtown locations. There will be some increase in occupancies in the near future as tenants begin to move into newly launched malls. For the Bangkok condominium market, a number of units expanded marginally in the second quarter 2017. A total number of new condominium launched in this quarter was 1,076 units, down from 2,367 units in the first quarter. On a year-on-year basis, the supply in the second quarter 2017 also decreased from 1,216 units in the same period last year, which represents an 11.5% decline. 

The majority of condominium units launched in the second quarter were in the luxury segment, representing 94% of total new launches. Sukhumvit continued to be a focus for developers as all projects launched in the second quarter emanated from this area. Availability of land in the area coupled with its access to current and planned public transport makes this part of the city popular with developers and buyers.

For the remainder of 2017, developers will continue to focus on areas outside the CBD. Despite this, price of prime CBD land in Bangkok will continue to increase as demand for downtown condominiums continues to remain strong with prices forecast to rise further over 2017. Demand for new units is expected to improve, as consumer confidence gradually recovers.