CBRE Thailand: economy hits development

Against an unfavorable economic backdrop, coupled with growing competition in the Bangkok retail market over the past couple of years, developers have been postponing projects, says property company CBRE Thailand in its retail market review for first quarter.

Affected are mega-projects Bangkok Mall, Central M, EmSphere and Mega Rangsit.

Instead, says the review, owners have been focusing on renovating and repositioning malls as well as selectively expanding upcountry.

Newly completed retail supply in Bangkok has begun to slow down, with about 60,000 sqm coming onstream from nine retail developments in the first quarter. None of the projects were big scale, says the report, the largest being the Ratchadapisek Suam Lum Night Bazaar.

Despite representing a small share of total retail sales, eCommerce has grown rapidly in Thailand over the past year, says the review, posing an up-and-coming risk to brick-and-mortar stores. This will spur growth in online shopping, forcing retail developers to create more attractions to lure consumers to their physical stores.

“Looking forward, unless domestic demand recovers, we do not expect the delayed projects to start construction any time soon,” says the review. “With the combination of low future supply and the completion of refurbishment in major retail centres, we believe the occupancy rate will bottom out this year.

“However, rental growth going forward is expected to be limited as competition remains fierce.”

Meanwhile, domestic demand is still weak. The retail sales index in January, estimated by the Bank of Thailand, was at 200.7 points, increasing by only 0.02 per cent.

Also, Thailand’s Consumer Confidence Index (CCI) dropped to 73.5 in March, the lowest level in five months, from 75.5 and 74.7 in January and February respectively.

Thailand’s household debt level continues to be an issue at more than 80 per cent of total GDP, dragging down the spending power of consumers.

Growing competition in the Bangkok retail market has seen several large-scale projects completed of the past year years, taking the total retail supply to 7.2 million sqm., up nearly 900,000 sqm from the figure in 2014.

“Not all shopping centres will perform,” says the review, “and we have seen falling occupancy in some of the old or poorly managed malls.”

First-quarter occupancy was at 92.9 per cent, down 0.3 percentage points from the previous quarter.

Retail sales in central Bangkok have improved as international tourist numbers have grown, up about 15 per cent from last year.

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