APPD Market Report Article

Bangkok

August 26, 2022

Jeremy O'Sullivan, Head of Research, Thailand

0.9%

THB 2,265

Rents
Falling

The return of footfall improves demand

  • Prime net absorption was positive at 8,627 sqm in 2Q22. The positive demand was mainly related to the inflow of new tenants in existing retail spaces, as well as newly opened projects like Central Rama 2 and Central Village. It was the first quarter since 1Q20 that net absorption was positive without any additional new supply.
  • A total of 25 retail openings were tracked in 2Q22, and at least six brands have announced plans to launch in 3Q22. Notable brands include SUSHIRO, Saemaeul, Decathlon and Don Don Donki. Furthermore, 2 out of 25 in the quarter were pop-up stores, including adidas x Gucci and Marimekko Cafe.

One withdrawal drives total prime stock down

  • As Terminal 21 Rama III and ICONSIAM phase 2 completions were postponed to the next quarter, the change in prime grade stock was driven by the withdrawal of Erawan Bangkok for renovation. As a result, the total stock decreased by -0.2% q-o-q. The withdrawal of Erawan Bangkok removed around -7,000 sqm from prime stock.
  • Despite the one withdrawal from total stock, the vacancy rate dropped by -42 bps q-o-q due to the replacements of new tenants in the existing vacant space. Footfall recovered to 80-90% of pre-pandemic levels, which drove demand for prime retail space. However, economic uncertainty continued to affect both tenant and consumer confidence.

Economic uncertainty limits rental growth

  • Prime gross rents rose slightly by 0.5% q-o-q and 0.9% y-o-y to THB 2,265 per sqm per month. The pace of recovery for rents was slow, mainly due to poor consumer confidence amid the economic slowdown. In the near term, ongoing economic uncertainty may limit rental growth.
  • The economic uncertainty has also affected capital values. Prime capital value increased to THB 190,943 per sqm, by 0.4% q-o-q and 6.8% y-o-y in relation to higher land and construction costs. For existing centres, asset enhancement remained the key means of improving asset value.

Outlook: Operating costs push developers’ focus to energy efficiency

  • With lower revenue due to limited demand, cost saving will be crucial for retail operations in the long term. Asset enhancement with a focus on energy efficiency technology can be incorporated into both new and existing projects, and is expected to continue emerging as a trend in the long term, with the aim of lowering operating costs.
  • New supply over the next 12 months will likely come from two projects, namely Terminal 21 Rama 3 and ICONSIAM phase 2. If they are completed as scheduled, a total of 68,300 sqm will be added to prime grade stock by end-2022.

Note: Bangkok Retail refers to Bangkok's prime retail market.

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