Competition increases in Bangkok retail-property market

Competition is increasing in the Bangkok retail-property market, according to international property consultant CBRE.

The competition is focused on the bricks vs clicks sector as e-commerce grows, and the bricks vs bricks market, as developers build new malls.

“All over the world, e-commerce is challenging traditional retail stores, and Thailand is no exception,” said CBRE in a report.

Currently e-commerce only forms a small percentage of total retail sales in Thailand, but CBRE expects that to change rapidly.

In the UK, 18 per cent of retail sales are now online rather than through traditional stores.

Globally, retail tenants are having to pursue an omnichannel approach with both online e-commerce sales and offline traditional sales in stores. In many cases, this has led to a rationalisation of their retail portfolio and a reduction in the number of stores.

In the Bangkok retail-property market, the threat to landlords is not just from the rise of e-commerce, but also from the increase in supply.

2019-03-18 - Retail Supply in Bangkok

Based on the latest survey by CBRE Research, there is more than 600,000sqm of space under construction due for completion by 2023, mainly in large-scale shopping malls like EmSphere, Bangkok Mall and One Bangkok. There are also new malls being planned where construction will start soon, such as the redevelopment of the Dusit Thani Hotel.

Competition in the Bangkok retail-property market is going to be fierce and landlords are going to have to adapt to the new environment to survive. That, according to CBRE Research, will mean big changes to their business model.

Historically, landlords have leased out space on three-year leases at monthly rents. Landlords have set rents based on the tenant’s ability to pay driven by business type, size of shop, which floor in the building and which location on the floor. Landlords have tried to extract as much rent as the tenant can afford to pay with the tenant bearing the obligation of a fixed amount of rent and assuming much of the business risk.

Now the business model is changing with tenants wanting the landlord to share more of the risk by basing the rent on a percentage of the tenant’s revenue, known in Thailand as a Gross Profit (GP) rent.

The landlord, along with the tenant, will benefit if business is good, but suffer if business is bad, with the landlord not only taking a risk on the ability of the mall to attract customers but also on the success of tenant’s business.

Landlords are also now expected not just rent space but to be data providers and analysts.

Tenants now want landlords to collect, analyse and share data on how many people come to the mall, how often and what they are spending their money on along with many other details, said CBRE.

Tenants are going to be increasingly demanding about the quantity and quality of information that they get from the landlord so they can best match their products and services to the mall’s customers.

In the current era, online retailers have to give people a reason to visit their store and not just to buy online.
Increasing the volume of food outlets providing “retailtainment” is one way to get more foot traffic into malls, but restaurants cannot pay the same rents as luxury brand retailers.

“Creating limited time opportunities through pop-up stores or events is another emerging trend giving people a reason to get up and go to a mall because they will not be able to get the product or have the experience elsewhere or at another time,” said CBRE Thailand’s head of advisory and transaction Jariya Thumtrongkitkul.

“The revolution in retailing with the coming of e-commerce and competition from new supply means that landlords will have to be a lot more sophisticated in what they provide both in terms of mall format and data”.

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