On the eve of Myanmar opening its doors to the world in 2011, multinational corporates and international organisations enjoyed rents as low as USD 20-30 per square metre per month in Yangon’s few modern office buildings while larger occupiers located in the few international-standard hotels. For example, the United Nations took up 5,000 square metres of space in the Trader’s (now Sule Shangri-La) Hotel for many years.

As foreign tourists began arriving in Yangon in 2012 and 2013, the city’s hotel rooms filled up even as daily rates increased 3-4 fold, forcing the relocation of organisations like the UN to other premises. At the same time, large numbers of new-to-market multinational corporates began seeking office space. With less than 40,000 square metres of modern stock in the market in 2012, rents in the city’s top buildings eclipsed the USD 100 per square metre per month mark mid-way through 2013 with many occupiers securing alternative space in residential apartments, renovated detached buildings, and small build-to-suit properties such as Telenor House.

As 2015 dawns, Yangon’s total office stock stands at 139,000 square metres (NLA basis) with no buildings that meet International Grade A standards. At present, there are more than 500,000 square metres of office space in the pipeline from at least 20 new projects due to complete by 2019, both under construction and in the planning stages. At the same time, average market-wide rents have been hovering around the USD 60 per square metre per month level for the last three quarters.

With rents starting to stabilise, will the onrush of new supply cause rents to collapse? We think not.

First, at least 100,000 square metres of space is tied up in large mixed-use projects where developers are generating significant returns from residential sales and have indicated preferences for converting planned office developments into residential use.

Second, one project that will bring 84,000 sqm to market over the next two years is presently achieving rents higher than the current market average and is reportedly 50% pre-committed.

Third, major foreign developers such as Keppel Land(), Mitsubishi Estate and Shangri-La are planning to bring more than 100,000 square metres of International Grade A space to the market by 2019 and should be able to achieve premium rents from top-tier occupiers. Based on trends in other emerging markets over time, it is likely that there will be sufficient demand from top-tier MNCs, large Asian manufacturers & trading companies, the largest domestic corporates and major international development / aid organisations to fill these planned developments quickly.

With a bright economic outlook, assuming a successful national election at the end of the year, we expect rents to remain stable throughout 2015 as corporates wait until the post-election picture becomes clear before making plans for 2016 and beyond. If developers proceed as above over the next several years, we expect rents to rise in 2016 and 2017 before declining again in 2018 and 2019 as new supply comes online, likely again stabilising near their end-2014 levels.

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