With new waves of foreign busi- nesses to enter the market, amid limited inventory, de- mand may outstrip top-tier supply in the medium term.
The entry of foreign F&B chains are upward pressures on retail rent. Coupled with the in- troduction of new and modern retail centers, landlords are confident with rents to range between USD 50 to 70 per sq m monthly.
Myanmar’s booming tourism industry, re- inforced with strong economic reforms, continues to lure investment opportunities in the country’s rapidly expanding hotel industry. More foreign investors are now submitting investment proposals, and new foreign partnerships are being formed – set to respond to the increasing business and tourist requirements.
Demand likely to outstrip new and quality office supply
Investment interest heightened towards the end of the second quarter with both develop- ers and investors closely pursuing potential commercial deals in the office sector. The total supply pipeline is then only seen to further augment which is now collectively at 300,000 sq m.
Despite the healthy supply pipeline, the market is still seen to be underserved going forward as the government is continuous- ly geared to grant more foreign business licenses in the succeeding months; while Myanmar continually offers investment opportunities in the longer term. Even on a regional level, the city severely lags be- hind its ASEAN counterparts in relation to the amount and availability of quality office spaces.
In 2Q 2014, the Yangon city-wide occupan-
cy rate slightly improved by a percentage point QoQ to 88% while supply remained unchanged at 99,900 sq m. Due to robust demand, occupancy rates in both the Inner City and Outer City zones are at an all-time
high while rates in Downtown Yangon, where all top-tier office buildings are locat- ed, has improved at a moderate pace. How- ever, as the government grants more foreign business licenses, particularly in the bank- ing industry, Colliers predicts that demand will outstrip the availability of top-tier office spaces in the medium term.
Meanwhile, Yangon’s premium office rents remain the highest in the ASEAN region. Though unchanged QoQ, the forecast di- rection on the average rate is set to move upwards and breach the USD100 per sq m mark in the next twelve months.
Top-tier retail projects – market’s new game changers
Large-scale and better quality retail devel- opments are soon to take shape in Yangon as the city transforms itself in to a modern day metropolis. Veering away from older shopping mall formats, retail players are now geared to introducing contemporary concepts and efficient designs to attract and cater to the city’s growing consumer-base. While many of the upcoming projects re- main small in scale, some developers are now keen in delivering regional-sized shop- ping centers similar to many advanced cities in the ASEAN region.
Future developments will create modern urban lifestyle concepts, consisting of com- munity and shopping malls as vital compo- nents of upcoming mixed-use projects.
Future developments namely HAGL Myan- mar Centre, Golden City, Junction City, Time City and Dagon City 1 are to be key players of the industry potentially bringing in foreign retail tenants.
More hotel zones planned to serve rapidly increasing demand
Both foreign-invested and local hotel de- velopments are projected to heighten on the back of increasing business and tourist arrival levels in Myanmar. In 2013, a total of 923 hotels were registered nationwide, according to the Ministry of Hotels & Tour- ism. The number grew by a substantial 17% annually translating to some 35,000 rooms. While in the first four months of 2014, 59 new hotels were unveiled with over 3,700 new rooms delivered. The majority were lo- cated in Yangon and Mandalay.
At present, Yangon city represents rough- ly 30% of the total supply; while with 250 more hotel licenses approved early this year, the city’s total room-stock is projected to more than double, backed by the surge in business and tourist arrivals.
These new hotels include upper-scale proj- ects currently being constructed and ex- pansion plans of existing developments. Renovations and plans of expanded opera- tions are currently in place in many of the presently completed hotels in Yangon such as Sedona, and The Strand. In fact, Traders Hotel in downtown was rebranded to Sule Shangri-La in the second quarter of the year, after undergoing extensive renovations over the last two and a half years.
Aside from the planned additional rooms, new foreign-invested upper-scale projects are expected to deliver substantial supply in the medium term, namely Hilton Ho- tel (300 rooms) in Kyauktada Township, Pullman Yangon Myat Min (300 rooms) in North Okkalapa, Novotel Yangon Max (366 rooms) and Daewoo Amara Hotel (346 rooms), both in Kamaryut Township. Hotels, as key components of mixed-use de- velopments, will similarly take shape in the next three to five years, in projects such as HAGL Myanmar Centre in Bahan Tonwhip,
Golden City in Yankin Township, The Land- mark in Pabedan Township, Junction City in Kyauktada Tonwhsip, and Dagon City 1 in Dagon Township.
Meanwhile, demand in the rest of the coun- try is forecast to trend strongly upwards particularly in Mandalay. However, room requirements in rapidly emerging destina- tions such as Inle Lake, Bagan, Ngwe Saung, and Ngapali, is similarly rising. The total number of foreign arrivals in the 1H 2014 grew by 43% YoY, and will only expand fur- ther amid positive economic reforms.
A seasonal drop in demand was expected in the 2Q 2014; however occupancy levels for the upper-scale segment reveals a further declining trend from the same period over the last two years. Yangon city-wide occu- pancy rate for all upper-scale hotels dropped by 22% QoQ to average at 54%, following the hot season in the months of April to June. The current rate is lower by seven and 13 percentage points than the same period in 2013 and 2012, respectively.
Upper-scale hotels in the outer city area reg- istered the least drop in occupancy which collectively stood at 64% – the highest occu- pancy rate for the quarter across Yangon. On an annual basis, the average occupancy in the Inner city is down by 4%; while in Down- town, a significant 16% drop was recorded.
Despite the growing foreign arrivals, the in- creasing ADR of upper-scale hotels in Yan- gon dampened occupancies in the 2Q 2014 with levels lower than in the past two years. This has resulted to a decline in RevPAR for 2Q 2014 in most of the city hotels YoY. On the other hand, locally operated hotels, of good quality, are benefitting from the imme- diate demand due to relatively lower rates.
Newwavesexpatriatestofaceaccommoda- tion challenges
The current shortage along with the weak supply pipeline of serviced residences in Yangon will pose challenges for new forays of inbound expatriates. As the government grants more foreign business licenses in various industries, expatriate accommo- dation requirements will persistently rise amid a limited number of quality of housing options in the city. To date, there are only seven serviced residences in Yangon – col- lectively consisting of just 990 rooms. The total stock has been unchanged over the last two quarters; since the introduction of Shangri-la Residences and SOHO Diamond in the latter part of 2013. Though more projects are underway, the future supply remains scarce, translating to only less than 150 new units in an average per year from 2015 to 2018.
Despite the introduction of substantial sup- ply in late-2013, occupancy rates quickly re- bounded in the last six months driven by the continuous rise in corporate requirements. As at the end of 2Q 2014, the rate ended at 96%, and is geared to hit fully-occupied levels towards the remainder of 2014. How- ever, the projected number of new supply remains inadequate with only 23 new rooms set to complete this year.
Meanwhile, Rental rates in the 2Q 2014 were relatively stable resulting from relatively lower leasing deals owed to limited avail- abilities. However, the rates remain exten- sively higher than in the past two years and as is most likely to increase in conjunction with the anticipated surge in new demand.
The average rental rate for three and four-bedroom were unchanged QoQ but is up by 3% and 5% YoY – to average at USD 7,015 and USD 8,920 per month, respective- ly. The lowest rental rate was at USD 2,300 per month in Espace Avenir Executive Resi- dences, while the highest was at USD 15,000 per month for a four-bedroom unit in Shan- gri-La Residences.
With limited existing supply and weak pipe- line, new waves of foreign businesses will face severe challenges in finding available accommodation options. The situation is only expected to be more pronounced as the government grants new licenses to foreign banks in the next three months, and the development of Thilawa Special Economic Zone in the long term. The growth in the financial market will then just lure various related industries bringing in executive ex- patriates in search of better quality serviced residences.
