Yangon 2016: What can we expect to see in the year ahead? (continued)

January 29, 2016 / By

Picking up where I left off in the first part of my blog on Yangon, this discussion focuses on Yangon’s retail market and foreign investment activity, as well as our general view for the market.

Yangon’s Retail Market

Until 2015, Yangon was dominated by local players, with only a handful of larger shopping centres. Despite high occupancy in existing centres, rents are comparatively lower than in the office sector. Last year marked the opening of the first large-scale foreign-invested retail centre, which spans 36,000 sqm and was 90% pre-committed on opening in December. Despite a modern design and an attractive tenant mix, average retail rent is only a quarter of the average office rents in this mixed-use project.

Foreign brands are beginning to penetrate the market although local regulations have limited them to only certain retail categories. Foreign-ownership is also restricted to 49% of a JV company in any of the permitted categories. Global brands like KFC and Pizza Hut have entered the market along with regional brands from Thailand and Korea. JLL have supported a number of retailers looking at market entry and feedback suggests a healthy dose of optimism coupled with reservations on the availability of quality local partners, the local talent pool, and challenges in import and distribution.

This year we expect more foreign investment and more new brands, albeit at a gradual pace. With wide-ranging limitations, not the least of which is consumer purchasing power, it will be some time before retail can truly take off.

Foreign Investment in Yangon Real Estate

Foreign investors have played an important part in the early development of Yangon’s real estate markets. Investment has come from all over Asia – from well-known developers based in Singapore, Korea, and Japan to lesser known but equally impactful investors from Thailand, Hong Kong, China, and Vietnam.

The real estate sector is also attracting investment from global investors such as the International Finance Corporation (IFC), the World Bank’s private sector finance arm. To date, IFC has disclosed investments totaling almost USD 200 million in project specific engagements such as the Shangri-La Hotel and Executive Residences as well as entity-level investments, such as the recent USD 25 million loan to CityMart – Myanmar’s leading supermarket operator.

Based on recent discussions with clients, foreign interest across sectors in Myanmar is still very high.  However with numerous limitations in multiple sectors as outlined above, we may see lower levels of foreign investment in 2016 than in previous years.

2016: Boom or Bust?

As occupiers, investors and developers take a more cautious approach to Yangon and Myanmar in general, we believe 2016 will be a year of moderation and perhaps even stabilisation in the market as a whole. Those occupiers and investors who rushed into the market in 2012 and 2013 looking for their pot of gold have largely gone home, leaving only the serious and committed. While many challenges remain, we believe the outlook for 2016 to be positive and look forward to helping our clients navigate Yangon’s dynamic landscape in the year to come.

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