APPD Market Report Article
BangkokSeptember 4, 2023
Anawin Chiamprasert, Head of Research & Consultancy, Thailand
Leasing market shows strong return of F&B tenants
- The Consumer Confidence Index saw an improvement, reaching a three-year high following the return of tourists and consumer spending activity. The improvement spurred healthy leasing activity, manifesting in positive net absorption of 21,600 sqm in 2Q23. This was driven by the new inflow of tenants into existing retail spaces, especially in the Siam Square area.
- In the quarter, strong demand continued to come from F&B tenants, some of which continued to launch their new branches, such as Sushiro and Boost Juice, while some are expanding from their first branch or first flagship stores, such as Shake Shack and Yakiniku Like.
One mall completes; two others experience downgrades
- After the full opening of ICS, a total of 6,150 sqm was added to the Prime Grade stock. A smart medical centre, which launched the concept of combining retail and healthcare services, is the anchor tenant. However, two malls were downgraded due to the significant vacant space resulting from their renovation plans. Consequently, the total stock decreased by -2.8% q-o-q to 3,493,700 sqm.
- However, in the pipeline that is expected to complete by 4Q23, 239,000 sqm of retail space is currently under construction across four projects. The largest project is One Bangkok, with a significant area of 85,000 sqm.
Improving economy supports rent growth
- The majority of Prime malls have returned to normal rent prices. Meanwhile, top-performing malls experienced healthy visitor traffic from a strengthening economy and the return of tourism. Prime gross rents have returned to positive growth and are estimated to grow by 1.9% q-o-q and 2.8% y-o-y to THB 2,141 per sqm per month.
- The increase in interest rates, inflation rates and operating expenses limited the increase in market yield, while asset enhancement remained the primary factor driving the increase in capital value.
Outlook: Quality future supply is expected to drive the retail market
- Anticipated robust activity is expected in future high-quality retail malls, particularly those with a significant number of tenants already secured. Central Westville, as an example, has already achieved more than 300 pre-commitments from various brands, including a number of F&B tenants. This high interest in leasing is likely to lead to healthy net absorption in the future.
- The change in consumer behaviour has resulted in increased demand for the retail sector. We anticipate strong demand from both domestic and international brands, particularly in the F&B industry.