Bangkok RetailAsian Cities Report – 2H 2019

REPORT

Savills Research

savills.co.th/research

Bangkok Retail

One million sq m of new retail supply will enter the market by 2022

ECONOMIC OVERVIEWBangkok is well known as one of the most visited cities globally with more than 22 million international overnight visitors in 2018 and a total of 38 million international tourist arrivals and tourism is a key contributor to Bangkok’s economy. Thailand’s overall GDP in Q2/2019 grew by 2.3%, which decelerated from 2.8% in the previous quarter, however there were positive signs from the Consumer Confi dence Index, which increased for the fi rst time in 6 months, reaching 46.3 in October from 46.0 in September 2019.

The strength of the Thai Baht, which has seen an increase of more than 6% against the dollar YTD, has been drawing a lot of interest from FOREX investors, although this has been having a negative impact on Thailand’s exports and tourism. Going forward it is unknown exactly what measures the government and the Bank of Thailand (BOT) will take in order to reduce the currency pressure.

There are a number of infrastructure development projects underway, which are intended to accelerate the country’s economic growth; the most notable being the expansion of Bangkok’s primary international airport and the extensive expansion of Bangkok’s rail system, with over 400 kilometres of new track under planning/construction.

SUPPLYBangkok prime retail reached three million sq m in 2H/2019, distributed over CBD, downtown, midtown and suburban areas. The CBD and downtown areas predominantly comprise high-end retail, while midtown and suburban comprise mostly the middle-up market segment.

In 2H/2019, there were two completed prime projects. Samyan Mitrtown mall opened in downtown, comprising 36,000 sq m of retail space as part of the mixed-use development. The mall features direct access from Samyan MRT station and is well tailored to the needs of the local offi ce workers and university students, including 5,000 sq m of 24/7 retail space. In the suburban area, Central Village, of 40,000 sq m opened and is Bangkok’s fi rst international luxury outlet mall, it’s located within a 10 minute drive of Suvarnabhumi International Airport.

Q3 featured the one-year anniversary of ICONSIAM, the riverside luxury mall with a gross fl oor area of 525,0000 sq m. From launch it had high occupancy and to date maintains 98% occupancy; indicating the level of real demand for space focused on the luxury segment of the Bangkok market.

OCCUPANCY AND RENTSThe occupancy level for prime CBD and downtown rose to a combined 97%, from 95% in the previous quarter; whilst rental rates have largely remained

GRAPH 1: Prime Retail Supply Distribution By Grade, 2H/2019

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CBD Downtown Midtown Suburban

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High-end Middle-up Middle

Source Savills Research & Consultancy

GRAPH 2: Prime Retail Supply Forecast, 2017 to 2024F

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2017 2018 2019 2020F 2021F 2022F 2023F 2024F

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Total Supply New Supply

Source Savills Research & Consultancy

GRAPH 3: Prime CBD and Downtown Retail Supply, Demand and Occupancy, Q1/2017 to Q3/2019

90%

91%

92%

93%

94%

95%

96%

97%

98%

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2017 2018 2019

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Supply (LHS) Demand (LHS) Average Occupancy (RHS)

Source Savills Research & Consultancy

POPULATION 10,350,204

POPULATION GROWTH PER ANNUM

(2010-2019)-0.75%

NO. OF HOUSEHOLD SIZE (2019) 3.19

UNEMPLOYMENT RATE (Q3/2019) 1.15%

GDP GROWTH (Q1-Q2/2019) 2.30%

CONSUMER CONFIDENCE INDEX

(OCTOBER 2019)46.3

TABLE 1: Bangkok Statistics

Source UN, Bank of Thailand, Ministry of Commerce, National Statistical Offi ce

Bangkok Retail

stable at THB2,550 and THB1,705, respectively. We observe that ‘share of gross operating profi t’ continues to be a key method of rental collection for the large shopping malls, though this often varies according to the attractiveness of the tenant and the format of the shopping mall.

The Market Bangkok on Ratchadamri Road has the lowest rate of occupancy of any of the prime retail malls in CBD and downtown areas, with an occupancy rate of just 82%. This low occupancy is due to several factors including its positioning and the strong competition within the surrounding area. However, with the Japanese retailer Don Don Donki having signed to open their second supermarket in The Market in Q1/2020, there is a chance for the mall’s overall performance to improve on the back of the extra footfall.

LATEST TRENDSF&B is becoming increasingly important for mall operators in Bangkok as they adjust their tenant mix to better suit the changing demands within retail, especially focusing on the retail experience. We have seen thorough renovations of shopping malls, such as Central World, wherein entire fl oors have been reassigned to food and beverage, which has helped elevate the occupancy rate of the mall to over 95%. We anticipate that other malls will follow suit and increase the variety and amount of F&B in order to increase occupancy and foot traffi c.

For the fi rst time we will witness competition between luxury outlet malls in the suburban area, between the recently opened Central Village and the under construction Siam Premium Outlet, a JV between Siam Piwat and Simon

The outlook for CBD and downtown retail remains positive, with limited new supply and high

occupancy rates across the majority of malls.

GRAPH 4: Major Retail Trading Indices, 2008 to 2018

Source Bank of Thailand

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Retail Sales IndexRetail Sale of Clothing Specialized StoresDepartment Store

Property Group comprising 50,000 sq m and scheduled for completion in 1H/2020. Going forward we may see other developers try to enter the suburban luxury outlet mall market, though it is too early to judge whether this format will be successful and whether the market can absorb additional space.

OUTLOOKAround one million sq m of new supply will enter the retail market from 2020 to 2022, of which the Bangkok Mall in Bangna, accounts for more than 800,000 sq m, while EmSphere, located in Phrom Phong, accounts for approximately 200,000 sq m. Both malls focus on their entertainment facilities and have concert halls of 16,000 and 6,000 seat capacity, respectively. The Bangkok Mall will focus on the middle-up market whilst EmSphere will be high-end. The intention of this entertainment space is to increase the length of visits and to better target the night-time economy, by off ering more suitable activities such as concerts and festivals.

Occupancy rates are anticipated to remain high for CBD and downtown malls, as we note that the high-end/luxury malls are in demand, and this area accounts for the majority of this grade. Middle-up and middle grades may fair less well due to the large amount of new stock entering, specifi cally Bangkok Mall. We expect that rental rates will on average increase at a modest rate, likely in-line or slightly below market growth, which is expected to be around 3% per annum.

GRAPH 5: Thailand Tourist Arrivals, 2009 to 2023F

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2009 2011 2013 2015 2017 2019F 2021F 2023F

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ALS

(0

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Source Ministry of Sports & Tourism

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