The Bangkok serviced apartment market is facing a difficult 2010 with a significant increase in supply while demand has fallen and is not likely to increase discernibly for Q2. From 2009 to 2011 it is expected that overall supply of serviced apartment units will have risen by 40%. This will be difficult for the market to absorb. Occupancy has continued to fall in Q1 2010 to the 65-70% mark for long term stays. This pattern is likely to continue until supply stabilizes and demand picks up again. Thong Lor is the new darling of the market with a number of high end apartments springing up in this fashionable, sought-after area. Serviced apartments continue to compete directly with hotels for the shorter term stay market.
The Knowledge Report COLLIERS INTERNATIONAL | THAILAND Executive Summary The Bangkok serviced apartment market is facing a difficult 2010 with a significant increase in supply while demand has fallen and is not likely to increase discernibly for Q2. From 2009 to 2011 it is expected that overall supply of serviced apartment units will have risen by 40%. This will be difficult for the market to absorb. Occupancy has continued to fall in Q1 2010 to the 65-70% mark for long term stays. This pattern is likely to continue until supply stabilizes and demand picks up again. Thong Lor is the new darling of the market with a number of high end apartments springing up in this fashionable, sought-after area. Serviced apartments continue to compete directly with hotels for the shorter term stay market. GRADING No recognized standard for rating serviced apartments exists in Thailand and therefore Colliers International Thailand have classified them based on various criteria, in which a summary is given below. Grade A Located in prime locations and luxury residential areas. Furnished to an exceptionally high stan- dard. 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 B Usually 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 C Located 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. MARKET INDICATORS 2009 - Q1 2010 SUPPLY DEMAND RENTALS OCCUPANCY www.colliers.co.th BANGKOK SERVICED APARTMENT MARKET | 1 ST QUARTER | 2010
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The Knowledge Reportc o l l i e R s i n T e R n aT i o n a l | T H a i l a n D
executive summaryThe Bangkok serviced apartment market is facing a difficult 2010 with a significant increase in supply while demand has fallen and is not likely to increase discernibly for Q2.
From 2009 to 2011 it is expected that overall supply of serviced apartment units will have risen by 40%. This will be difficult for the market to absorb.
Occupancy has continued to fall in Q1 2010 to the 65-70% mark for long term stays. This pattern is likely to continue until supply stabilizes and demand picks up again.
Thong Lor is the new darling of the market with a number of high end apartments springing up in this fashionable, sought-after area.
Serviced apartments continue to compete directly with hotels for the shorter term stay market.
GRaDinGNo recognized standard for rating serviced apartments exists in Thailand and therefore Colliers International Thailand have 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 stan-dard. 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.
MaRKeT inDicaToRs
2009 - Q1 2010
sUPPlY
DeManD
RenTals
occUPancY
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ZoningThe serviced apartment area can be divided into five areas or pockets of concentration:
•CentralCBD This is the area that encompasses Silom, Sathorn, Surawong, Sipraya and Rama 4 Road as well as other sois in between, such as Soi Saladaeng, Soi Convent, Soi Pipat.
•CentralLumpiniArea The Central Lumpini covers the areas along Rama I, Rajdamri, Wireless, Ploenchit, Langsuan, Payathai and Phetburi Roads, as well as other sois in between, such as Soi Langsuan and Soi Ruamrudee. •EarlySukhumvitArea This is the section of Sukhumvit Road between Soi 1 and Soi 35 to the north and Soi 2 and Soi 24 to the south.
•LateSukhumvitArea This is the section of Sukhumvit Road between Soi 37 and Soi 77 to the north and Soi 24 and Soi 50 to the south.
•SouthernFringeArea This 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.
•OtherAreas Most of the remaining Grade B & C serviced apart ments are scattered across the city including Phayathai, Phetchaburi, Ratchadapisek, Mitmaitri, Srinakarin Bangna and Ramkhamhaeng Road.
The majority of supply came in the form of five surges over the past 16 years. The first serviced apartment started operation in 1991 but the first rapid increase came in 1993 with over 1,100 units added. The emergence of serviced apartments on the real estate scene in Bangkok was a consequence of the dramatic growthinFDIintothecountrywhichnecessitatedtheneedforexpat accommodation. This was particularly noticeable from Ja-pan following the Plaza Accord that increased the value of the Yen and led to its relocation of manufacturing outside its borders. The Japanese have been considered the mainstay of serviced apartment demand ever since.
The growth of foreign investment and expats coming to Thai-land led to an even bigger flood in 1997. The addition of nearly 2,000 units was also the result of the property boom that finally
ended in bust following the Asian Financial Crisis that began in 1997. Foreign investment returned in the early 2000’s and an-other 1,500 units came onto the market in 2003. While Thai-land entered its period of political uncertainty in the second half of the decade, confidence in the economy was still strong and significant supply was added in 2007 and 2009 which can also be partly explained by the focus on shorter term stays targeting holidaymakers and business travelers. In fact 2009 represented the biggest influx so far with nearly 2,200 units added.
Source : Colliers International Thailand Research
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sUPPlY BY Zone/ GRaDe
The majority of supply is situated in the early Sukhumvit area, followed by Central Lumpini area. The dominance of early Sukhumvit is explained by the presence of a large number of of-fices as well as shopping and entertainment facilities. This area continues to be a main draw for residents and tourists alike. The
significance of the Central Lumpini area is due to the number of embassies as well as the prime office and retail space located in thearea.TheCentralCBDremainspopularduetothedensityof offices.
Almost half of serviced apartment supply in Bangkok are grade B projects with most located in the early Sukhumvit area, followed by grade A projects with 32%. Nearly two thirds of grade A units
arelocatedinCentralCBDandearlySukhumvitarea.GradeCis less popular due to competition coming from higher end apart-ments for lease.
One bedroom units are the most popular in the Bangkok serviced apartment market with 44% of the total market. The fact that 70% are either in a studio or one bedroom configura-tion is an indication that much of the demand comes from single
people or couples without children as well as temporary stays requiring more hotel style accommodation.
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Source : Colliers International Thailand Research
Source : Colliers International Thailand Research
UniTs siZe BY RooM TYPe
FUTURe sUPPlY in BanGKoK
The sizes of the various unit configuration varies little between area. The greater number of A grade apartments in Central Lum-
piniandCentralCBDaccountfortheslightlybiggerfloorareafor most arrangements.
More than 1,300 units are scheduled to be completed in 2010 and about 2,000 units in 2011. This means that 2009-2011 will witness around a 40% increase in serviced apartment supply in
Bangkok. This will be a significant amount for the market to absorb.
Sukhumvit will contain the majority of new units over the next couple of years. However considerable growth will be registered in the late Sukhumvit area. This trend is the result of access to the BTS, shortage and prices of land, lower rental rates, the
emergence of Thong Lor as a fashionable location and arguably the wish to be located away from the tourist trap environment in the early Sukhumvit area.
From 2005 there has been a steady decline in occupancy for both A and B grades from the high eighties to about 65% in Q1 2010. This can attributed to the influx of new supply while political
uncertainties and global recession have dampened demand from both tourists and expats.
The occupancy rate in late Sukhumvit was measurably higher than other locations with a healthy 85%. This is due to the fac-tors given above making it into an attractive location compared withCentralCBD,CentralLumpiniandearlySukhumvitarea.The Other areas also have high take up due to them being close
to the mass transit lines but with cheaper rental rates as they are located outside the central area. The low rates in the Southern Fringe area are due to its perennial problem of being located far away from any mass transit lines making the location unappeal-ing to both expats and tourists alike.
In terms of grades, grade C projects performed better than an-other grades. The important factor is the lower rental rates due
to them being located away from prime areas but close to mass transit lines.
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 has decreased very slightly from last year.
nUMBeR oF exPaTRiaTes in BanGKoK, Q1 2010
Source : Office of Foreign Workers Administration (Work Permit), Department of Employment of The Ministry of Labor and Colliers International Thailand ResearchRemark : Above information does not include Lao, Burmese and Cambodian citizens
The number of new work permits issued dropped significantly in 2009 and the same pattern has continued for the first quarter of 2010. Employees new to Thailand are an important source of demand for serviced apartments as many expatriates start their
life in theses types of residences before moving onto apartments for lease or even purchasing a condominium unit if they intend to reside in the city for a long time.
Japanese constitute the largest foreign contingent residing in Bangkok. The numbers of Japanese carries enormous conse-quence for the serviced apartment market. A large proportion of other nationalities work in occupations involving local contacts
such as English teaching and therefore do not have the pay levels and benefits that would create any noticeable demand for ser-viced apartments. It is likely that Japanese represent the majority of long stay residents.
new woRK PeRMiTs issUeD in BanGKoK, 2004 – Q1 2010
Source : Office of Foreign Workers Administration (Work Permit), Department of Employment of The Ministry of Labor and Colliers International Thailand ResearchRemark : Above information is not included Laos, Burmese and Cambodians
Source : Office of Foreign Workers Administration (Work Permit), Department of Employment of The Ministry of Labour and Colliers International Thailand Research
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RenTal RaTe BY RooM TYPe & locaTion, Q1 2010
sHoRT TeRM sTaYs
The serviced apartment market has always competed with hotels for the short term stay market from both business travel-ers and tourists. The attractions of a larger floor area, kitchen facilities and a more homely atmosphere can make a compelling alternative for jaded frequent flyers. In Thailand only establish-ments with hotel licenses are allowed to offer a daily rate and it is unclear which serviced apartments have such a license. The distinction between serviced apartments and hotels is becoming increasingly blurred as both compete for each other’s markets.
Many companies are booking two bedroom units in serviced apartments for two people travelling on business together as
opposed to two individual rooms at a hotel in order to save on costs.
The risk for serviced apartments is that for the end-user hotels and serviced apartments are different products. For the longer term resident the choice of serviced apartments is somewhat emotional as this will be where they and perhaps their family will live for part of their lives. Hotels are seen more as a com-modity where guests will consider facilities and price in a more cold hearted way. Therefore serviced apartments must be careful how they position their product.
RentalratesarehighestintheCentralCBDandCentralLumpi-ni due to the location of many embassies in these areas as well as financial institutions. The interesting comparison is between ear-ly and late Sukhumvit. While Early Sukhumvit is located close to Grade A office space and nearer to the centre, Late Sukhum-
vit has higher rentals for apartment configuration. The reason for this is the greater number of newer serviced apartments in late Sukhumvit with internationally branded operators.
The serviced apartment market faces a few challenging years due to the influx of new supply and operators will be hard pressed to maintain occupancy rates. Even with Thailand’s political situa-tion stabilizing it is difficult to envision the substantial number of new foreign workers required to absorb the new supply for long stays.
It is likely that operators will continue to compete directly with hotels for short term stay guests and the hotel market itself is facing serious difficulties with increasing new supply.
As in any other industry the serviced apartment market must innovate and be flexible to weather the difficult times ahead.
New markets and products should be targeted such as retirement/medical stay packages for the greying babyboomers in Japan, Europe and the USA as well as kitting out units to be used as temporary home offices in some instances.
The long term political situation may deter foreigners from investing as well as taking on postings if the instability becomes endemic and this will seriously harm the market in the longer term.
The market can be divided into three main types of players. One is the non-branded apartments in which the management struc-ture is similar to the high end apartments for lease except for the fact that they are serviced. A number of Thai brands have been established such as Centerpoint and Bandara and also foreign brands have also set up in Bangkok such as Marriott and Som-
erset. In terms of rentals the foreign branded residences tend to command a premium due to them being of higher grade. Thai branded apartments on average command higher rental prices than non-branded ones but lower than foreign branded.
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