Nexus Summarizes the Overview of the Bangkok Real Estate Market in 2018: The Condo Market Begins to Adjust to Real Demand, While Commercial Rental Prices Reach Historic Highs
(December 24, 2018: Bangkok)<\/span><\/em><\/strong><\/span> <\/span><\/strong>Nexus reports that this year, the average condo price in Bangkok increased by 7.6%, while the price of condos in the city center rose by 10%. It is expected that in the next 2-3 years, developers should focus on projects that meet real demand. The average rental price for Grade A office space in the central business district has surpassed 1,000 THB/sqm/month, while rental prices in shopping centers have reached an average of 3,900 THB/sqm/month and are likely to continue rising. Next year, the office rental market and shopping center market will certainly see increased competition, making it a trend worth watching closely.<\/span><\/p>
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Condominium Market<\/span><\/strong><\/span><\/p>
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Mrs. Nalinrat Chareonsuphong, Managing Director of Nexus Property Marketing Company Limited)<\/span><\/strong> revealed that <\/span>2018 <\/span>was still a year with a relatively high supply of condominiums in the market from both large and small developers, with 60,900 new units from 138 projects, bringing the total accumulated units to 610,900. The most popular locations for project development remain Phaya Thai, Ratchada, and Phaholyothin (21,100 units, 35%), followed by Phra Khanong and Suan Luang (13,500 units, 22%) and Thonburi and Phetkasem (8,500 units, 14%). Over the past five years, these three locations have seen the highest supply increase rates of over 65-70%, driven by the ongoing trend of living in condos near the BTS. These areas also have more land available for development compared to central locations.<\/span><\/p>
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Additionally, analyzing the new supply that emerged in the past year shows that 41% of the total units came from the high-end market, with prices ranging from 110,000 to 190,000 THB per square meter, and unit prices between 4-8 million THB. This is followed by the mid-market segment at 27% and city condos at 21%. This distribution may not align well with the income and salary base of Bangkok residents, as rising land prices have forced developers to focus on higher-priced products.<\/span><\/p>
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In 2018, total condominium sales in the Bangkok market amounted to 52,000 units, with 31,800 new units launched in 2018 (representing an average sales rate of 52%) and an additional 20,300 units sold from projects launched before 2018. This increase in sales from both new and previously launched condos resulted in an overall sales rate in the market of 90%, with 62,700 units still available for sale.<\/span><\/p>
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In 2018, the average selling price of condominiums in the market increased by 7.6% from 130,600 THB per square meter to 140,600 THB per square meter, with the city center seeing the highest increase of 10% to 231,000 THB per square meter. The surrounding areas of the city increased by 7% to 113,200 THB per square meter, while the outer areas saw a modest increase of only 1% to 73,500 THB per square meter. The trend of rising condominium prices in Bangkok is beginning to show a slight decrease in the rate of increase, likely due to developers recognizing the trend of significantly rising prices in the market over the past 2-3 years. For instance, in 2018, the price in the area behind Suan Pakkad increased by only 3%, and in the Thonburi-Phetkasem zone, which has a relatively wide boundary, prices increased by only 1%. However, this does not mean that quality products that meet consumer needs will not have the opportunity to rise in price in the Bangkok condominium market.<\/span><\/p>
Source<\/span><\/em><\/strong>: Nexus Research, December 2018<\/em><\/strong><\/span><\/p>
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For the forecast of the condominium market trend in 2019, Mrs. Nalinrat Chareonsuphong<\/span> <\/strong>believes that the new supply expected to emerge in 2019 will likely increase at a rate close to the average figure of 53,000 units over the past five years, while demand will remain between 50,000-55,000 units. Based on these estimates, the overall sales rate and remaining units in the market should be close to this year's figures. The development of products will also be adjusted to better target niche groups, such as condos for fitness enthusiasts, seniors, or pet lovers. Additionally, long-term rental condos in prime locations will increase in the market, along with mixed-use projects that combine condominiums with commercial space, which should cater to the lifestyle of the new generation seeking convenience.<\/span><\/p>
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Furthermore, from Nexus's perspective, the proportion of units that developers should focus on should shift towards the city condo segment and the mid-market segment, which represents a larger population group in Bangkok, to better meet actual housing demand. This will be a more stable and sustainable market compared to the foreign investment market. However, we do not overlook foreign investments. For the foreign investment market that has been closely watched recently, investment from large investors or institutional investors will continue to be seen. In 2019, the proportion of units purchased by investors from China, Japan, and some from Hong Kong and Singapore is expected to rise to 30% from 26% (15,820 units in 24 projects in 2018). Additionally, individual investors from China are likely to continue purchasing real estate in Thailand in areas expanding beyond traditional locations. The markets of Hong Kong, Singapore, and Taiwan are expected to maintain investment levels similar to last year, while the CLMV market is a new market to watch closely.<\/span><\/p>
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Analyzing the adjustment of condominium prices in Bangkok over the next 1-3 years, Nexus believes that prices will rise at a decreasing rate. The rising land prices are unlikely to increase at the same rate as in previous years. Therefore, developers are expected to develop projects at prices that do not need to rise significantly. It is predicted that condominium prices will increase on average by 6-7% per year.<\/span><\/p>
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Moreover, in terms of project development locations, the illusion of location will play a role in the consideration of purchasing residences. Prompong, Thonglor, and Ekkamai remain popular locations for developers seeking land for project development. However, the prices of condominiums in these areas should be appropriate for the actual target group. Meanwhile, riverside locations along the Chao Phraya River and Thonburi, which have attracted interest from developers over the past year, have seen continuous increases in land prices, along with the ongoing construction of the Gold Line BTS. Similarly, new condominiums in these areas will certainly have to be priced higher. In fact, locations like Tiwanon, where many developers still have questions about the existing supply, will be interesting in the next 1-2 years as completed condominiums in this area will be the most affordable in the market. Lastly, Ratchada and Rama 9, a golden location for foreigners, especially Chinese nationals, must set prices and marketing strategies appropriately and provide after-sales services that genuinely meet the needs of this foreign customer group.<\/span><\/p>
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The Bank of Thailand's policy regarding changes in the loan-to-value ratio for real estate purchases will affect the development of housing products, whether houses or condominiums. Houses may see more sales during construction to allow buyers to pay part of the down payment first. Condominiums may need to focus more on pre-sales with extended payment terms. Ultimately, the economy and politics, which are likely to change due to elections, will also impact market direction.<\/span><\/p>
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Office Rental Market<\/span><\/strong><\/span><\/p>
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Mr. Teerawit Limthongsakul, Managing Director of Nexus Real Estate Advisory)<\/span><\/strong> stated that the Grade A and Grade B office rental market in Bangkok has a total area of approximately 4.1 million square meters. It continues to grow steadily, with rising rental prices and low vacancy rates. Data from the fourth quarter of this year shows that the supply of office space for rent in Bangkok has slightly decreased due to some buildings undergoing renovations to modernize, enhance safety, cleanliness, and comfort to attract tenants. The demand for office space remains high from co-working spaces and serviced offices that are gaining popularity, leading to a reduction in the vacancy rate to only 4%. New Grade A office buildings are particularly attracting significant interest from tenants.<\/span><\/p>
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The average rental price for office space in Bangkok is approximately 800 THB/sqm/month. However, if we consider only Grade A office buildings in the central business district, the average rent exceeds 1,000 THB/sqm/month, marking a new record in the Bangkok office rental market. Furthermore, some buildings located on Witthayu or Ploenchit roads, such as Gaysorn Tower and Park Venture Ecoplex, can command rental prices as high as 1,500 THB/sqm/month, which is currently the highest price.<\/span><\/p>
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Source<\/span><\/em><\/strong>: Nexus Research, December 2018<\/em><\/strong><\/span><\/p>
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However, in the next five years, there will be at least 1 million square meters of new office space for rent added, or about 25% of the current market area. This may result in a vacancy rate of up to 10%, double the current rate of 4-5%. This would be the highest vacancy rate in the past 10 years and could slow the rate of rental price increases.<\/span><\/p>
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If this scenario occurs, the office rental market in Bangkok will undoubtedly become more competitive, potentially leading to market changes. The increased supply will give tenants greater bargaining power. However, even if the vacancy rate reaches 10%, it does not mean there will be an oversupply in the market, as a 10% vacancy rate is still considered acceptable compared to other major cities worldwide.<\/span><\/p>
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According to a survey by Cushman & Wakefield, a partner of Nexus, the average vacancy rate for office rental space in the APAC region is around 10%, and even in the United States, the vacancy rate is as high as 13.3%. Therefore, if Bangkok has a vacancy rate of around 10%, it is still considered normal.<\/span><\/p>
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Shopping Center Market<\/span><\/strong><\/span><\/p>
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For the shopping center market, surveys indicate that it continues to grow steadily due to economic factors, private consumption, and the tourism industry.<\/span><\/p>
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The rental prices for shopping center space in high-competition areas such as Rama 1 and Prompong average around 3,900 THB/sqm/month, while the highest rental prices in this area exceed 5,000 THB/sqm/month, as seen in the offers for space on the G level of Siam Paragon. Additionally, the area outside the central business district, such as Icon Siam located by the Chao Phraya River, also has rental prices exceeding 5,000 THB/sqm/month, marking a new record for rental prices in the Bangkok shopping center market.<\/span><\/p>
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Nexus's survey found that the newly available shopping center rental space this quarter comes from Icon Siam and Gateway at Bangsue, which officially opened in November. It is expected that the total area of shopping center rental space will reach 240,000 square meters next year.<\/span><\/p>
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Source<\/span><\/em><\/strong>: Nexus Research, December 2018<\/em><\/strong><\/span><\/p>
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The overall forecast for the Thai economy and tourism next year remains positive. The Tourism Council predicts that the number of tourists by the end of 2018 will increase by 5.08% from the previous year, totaling 37.2 million people.<\/span><\/p>
Due to the tendency of Thai people to shop in stores themselves and the hot weather, shopping centers have become very popular among Thais. However, in the current highly competitive market, operators need to adapt new strategies to enhance their competitiveness, attract customers, and increase sales, such as through design, lifestyle, amenities, safety, and platforms that will help operators remain viable in the market.<\/span><\/p>
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Thank you for the information from nexus.co.th<\/a><\/span><\/p>
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