2009 - 2010 SUPPLY RENTALS OCCUPANCY BANGKOK SERVICED APARTMENT MARKET REPORT THAILAND www.colliers.co.th Bangkok Serviced Apartment Market EXECUTIVE SUMMARY The year 2010 was a difficult one for the serviced apartment market in Bangkok as occupancy rates plunged during the protests of April and May. Although the market picked up in Q3 2010 the figures for Q4 show that occupancy remains moribund and there is now a danger that this will be carried on into 2011. Central Lumpini fared worst over the year with significant drops in both occupancy and rental rates. The protests may have dented the area’s image as an upper market location and continuing protests will likely further impact the area negatively. Supply was down from the 2009 figure but the market is struggling to absorb the surge in supply for 2009; and 2011 is expected to herald a significant amount of new units thus exacerbating current problems. The silver lining comes in the form of the Late Sukhumvit area which continues to show the highest occupancy of all areas. This area could be the main secondary location for serviced apartments outside of the Central CBD or even primary area if protests ramp up and violence ensues. Serviced apartments continue to compete head on with hotels for the shorter term stay market. In such challenging times the market will need to look for new niche products such as in medical tourism or hybrid residence/offices. However the strong branding and quality of serviced apartments in Bangkok will be a major pillar of strength in these difficult times. YEAR END 2010 | SERVICED APARTMEMT MARKET INDICATORS
Transcript
2009 - 2010
Supply
rentalS
Occupancy
Bangkok Serviced apartment market report
thailand
www.colliers.co.th
Bangkok Serviced Apartment Marketexecutive Summarythe year 2010 was a difficult one for the serviced apartment market in Bangkok as occupancy rates plunged during the protests of april and may. although the market picked up in Q3 2010 the figures for Q4 show that occupancy remains moribund and there is now a danger that this will be carried on into 2011.
central Lumpini fared worst over the year with significant drops in both occupancy and rental rates. the protests may have dented the area’s image as an upper market location and continuing protests will likely further impact the area negatively.
Supply was down from the 2009 figure but the market is struggling to absorb the surge in supply for 2009; and 2011 is expected to herald a significant amount of new units thus exacerbating current problems.
the silver lining comes in the form of the Late Sukhumvit area which continues to show the highest occupancy of all areas. this area could be the main secondary location for serviced apartments outside of the central cBd or even primary area if protests ramp up and violence ensues.
Serviced apartments continue to compete head on with hotels for the shorter term stay market. in such challenging times the market will need to look for new niche products such as in medical tourism or hybrid residence/offices. However the strong branding and quality of serviced apartments in Bangkok will be a major pillar of strength in these difficult times.
no recognized standard for rating serviced apartments exists in thailand and therefore colliers international thailand has classified them based on various criteria, in which a summary is given below. Grade aLocated in prime locations and luxury residential areas. Furnished to an exceptionally high standard. offering recreational facilities and amenities similar to a Luxury or Upper Scale hotel. managed by a top international branded operator or comparable local brand.
Grade BUsually located in the centre but also in less prime locations. Furnished to a high standard but usually offers recreational facilities and a variety of services similar to an Upper or mid Scale hotel. managed by a lower-end international or domestic operator.Grade cLocated in secondary locations. Furnished to a comfortable, but not luxurious, standard. Fewer provisions of facilities and amenities, similar to that of a mid-scale or economy hotel.
GradinG
ZOninGthe serviced apartment area can be divided into five areas or pockets of concentration:
• Central CBD this is the area that encompasses Silom, Sathorn, Surawong, Si phraya and rama 4 road as well as other sois in between, such as Soi Saladaeng, Soi convent, Soi pipat.
• Central Lumpini Areathe central Lumpini covers the areas along rama i, rajadamri, Wireless, ploenchit, Langsuan, phayathai and phetchaburi roads, as well as other sois in between, such as Soi Langsuan and Soi ruamrudee.
• Early Sukhumvit Areathis is the section of Sukhumvit road between Soi 1 and Soi 35 to the north and Soi 2 and Soi 24 to the south.
• Late Sukhumvit Areathis is the section of Sukhumvit road between Soi 37 and Soi 77 to the north and Soi 24 and Soi 50 to the south.
• Southern Fringe Areathis is the area that stretches along the bank of the chao phraya river on charoenkrung road. narathiwas ratchanakarin road and rama iii road are located in this area.
• Other Areasmost of the remaining grade B & c serviced apartments are scattered across the city including phayathai, phetchaburi, ratchadapisek, mitmaitri, Srinakarin Bangna and ramkhamhaeng road.
For the first half of 2010 only around 20 serviced apartment units were added, and then around 180 units were supplied in Q3 2010, but approximately 340 units were added in Q4 of 2010. Supply was in four locations, central Lumpini, early Sukhumvit, Late Sukhumvit and other
areas. total supply of serviced apartment units as of 2010 was approximately 16,300 in around 125 apartments.
additional supply in Q4 was approximately 340 units and total new supply in 2010 was around 550 units, lower than the forecast because some serviced apartment projects were delayed from the last quarter of
this year to next year, due to the halting of construction during the april and may political protests in the centre.
hiStOrical Supply
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Since 1995 and up until now, early Sukhumvit area has been by far the most popular for serviced apartments. although no mass transit system existed until the end of 1999, the appeal to western and Japanese expatriates meant that this area was the bulwark of the sector. other
areas have also grown but on a lower trajectory. in the past few years the Late Sukhumvit area has become a new prime location especially due to the rise of thong Lor as a fashionable area to reside.
overall Sukhumvit road and its vibrant sois contain over half of all serviced apartment units in Bangkok with nearly 40% of total supply being located in early Sukhumvit area. the mix of good transport links,
entertainment, retail and office facilities creates a strong lure for people to stay in Sukhumvit.
nearly half of total supply is in the grade B category in Bangkok while just over a third is grade a.
Supply By lOcatiOn and Grade
Source: colliers international thailand research
the distribution of serviced apartments differs according to location based on the particular profile of each area. central Lumpini contains many large embassies and is therefore seen as being the most prestigious location to live and as such contains more grade a units. Late Sukhumvit also contains more grade a units due to the location containing a number of luxury branded apartments in thong Lor road catering to the large
Japanese community there. early Sukhumvit is the king of grade B apartments as it is a more unpretentious, relaxed location which also explains the location of more Upper Scale rather than Luxury hotels. the ‘other’ areas contain more grade c products due to the distance from the centre.
more than 1,900 units are scheduled to be completed from 2011. the serviced apartment is not undergoing a boom like the past due to the highly competitive market in some locations and this has led to the postponement of new projects, especially along Sukhumvit road.
Sukhumvit road will contain the majority of new supply in the next years. more than 620 units will be located in early Sukhumvit area and
approximately 525 units in Late Sukhumvit area. the main driver is not only the popularity of this road as a residential destination but also that the relative price of land is lower than the more central locations and is also convenient for the BtS line.
average occupancy rates in Q2 tumbled due to the april and may protests. this is mainly a result of short term guests cancelling but also many longer term stays, especially Japanese, leaving thailand to escape from the perceived danger. While occupancy rates soared back in Q3 2010 they have since lost their momentum and have even fallen back in
the case of grade a apartments. the holiday season should be a strong period for the serviced apartment market due to the number of tourists. However this has not been translated into increased occupancy. Higher spending tourists are choosing to avoid the city due to the myriad of problems the city has in attracting this crucial demand segment.
Source: colliers international thailand research
Source: colliers international thailand research
expected future Supply in 2011
Occupancy fOr BanGkOk Serviced apartmentS On BOth extended Stay and cOrpOrate hOuSinG SuB-SetS
Source : office of Foreign Workers administration (Work permit), department of employment of the ministry of Labor and colliers international thailand research
remark : above information does not include Lao, Burmese and cambodian citizens e = estimated by colliers international thailand research
in all locations occupancy fell during Q2 2010 but were more pronounced in some areas than others depending on the proximity to the protest area. therefore central cBd and central Lumpini suffered the most. in both these areas occupancy has since picked up especially in the central cBd but central Lumpini still remains quite depressed and is far behind the numbers recorded in Q1 2010. the protests may have dented the
kudos of staying in this area. However the situation is bright for the Late Sukhumvit area which can boast the best occupancy rates throughout the year. the area is becoming increasingly fashionable, especially thong Lor with easy access to the BtS and now the airport Link; but far away from perceived trouble
expatriates represent the primary source of demand for the serviced apartment medium and long stay market. the global economic crisis affected expat numbers in Bangkok significantly in 2009, reducing the number by around 15,000. the number of expatriates in Bangkok in Q1 2010 decreased very slightly from last year, but in Q2 2010 dropped
more than 10,000, due to the political problems in the centre of Bangkok. However in Q3 – Q4 2010 there was an increase but the total number is still similar to 2009 and below 2008 prior to the global Financial crisis (gFc).
after the protests in Q2 work permits issued picked up in Q3 - Q4 of 2010 which indicates a more positive trend going forward combined
with global economic recovery.
the Japanese still represent the largest group of expatriates in Bangkok and are also the main target group for serviced apartments with most of them staying along Sukhumvit road. other nationalities are often in the
lower pay bracket and the rental rates of serviced apartments would be beyond reach.
Source : office of Foreign Workers administration (Work permit), department of employment of the ministry of Labor and colliers international thailand research
remark : the information above does not include Laos, Burmese and cambodians e = estimated by colliers international thailand research
Source : office of Foreign Workers administration (Work permit), department of employment of the ministry of Labour and colliers international thailand research
new wOrk permitS iSSued in BanGkOk durinG 2004 – 2010 By quarter
prOpOrtiOn Of expatriateS in BanGkOk, q4 2010
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the serviced apartment market is divided into two distinct sub-sets in terms of demand for units; corporate housing and extended stay. corporate housing is normally three months or over and is provided for expats as a package when posted for a new assignment. throughout the world in general this is the predominant form of demand as this type of accommodation is not usually booked using the global distribution Systems (gdS) such as amadeus that are prevalent in shorter stay hotels and airlines. in fact two thirds of serviced apartments in the world
do not use this service. instead they focus on more traditional forms such as direct marketing, internet websites and personal visits due to the less commoditized and more individual relationship between the long staying guest and the apartment. on the other hand in thailand, a greater number of serviced apartments use the gdS systems which would indicate greater reliance on the extended stay market, focusing on business travelers and even tourists.
demand frOm extended Stay and cOrpOrate hOuSinG SuB-SetS
rental rate
rental rate fOr One BedrOOm unitS By lOcatiOn, q1 – q4 2010
Source : colliers international thailand research
the protests at rajprasong intersection directly impacted the occupancy rate and rental rate in Q2 2010. the average rental rate in central Lumpini area decreased by nearly 20% in Q2 and has remained at these lower levels. in fact the area has gone from second to fourth in terms of
rates over the course of the year. in the Q4 2010 average rental rate in central cBd increased approximately 7.4% from Qwhile other areas remain similar to Q3.
the average rental rate of grade a unit are greater than grade B by approximately 1.7 – 12.7% depending on room type.
Source : colliers international thailand research
rental rate Of Grade a and B By rOOm type, q4 2010
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the serviced apartment market is dependant on two main variables. one is the number of expats, especially from Japan and the other is business and tourist visitors to Bangkok. there are a number of positives for the first segment as growing industrial activity seems to be translating into more expats coming to thailand and therefore increasing demand for serviced apartments. However the tourism market in Bangkok remains very depressed as the city reflects on the neglect of its tourism infrastructure by failing to refresh itself and providing new attractions. difficult times for the industry lie ahead especially in light of a slew of new supply coming on stream over the course of 2011.
the upmarket appeal of Lumpini seems to be giving way to Late Sukhumvit as the new fashionable and perceived safer area in which to stay. Japanese are by nature very cautious and sensitive to violent demonstrations and this has likely led to some relocating away from Lumpini. it must also be considered that people who stay in serviced apartments as long stay guests are there for a reason; enjoying the
greater comfort and security than that found in an apartment for lease. it can therefore be assumed that those who occupy serviced apartments are more likely to be sensitive to violence and disruption. With ongoing demonstrations and the heady election period soon to be upon us this trend is likely to continue and even become entrenched for the foreseeable future.
the gloomy prognosis can be tempered by the nature of the sector itself. the serviced apartment business is one of the most mature in terms of choice and strength of local and international brands. in light of this the sector can weather the situation with emphasis on developing niche markets such as medical tourism, babyboomer retirees and hybrid hotel/office locations.
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