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Research & Forecast Report

Yangon | Serviced Apartment Market 2Q 2014

New waves of expatriates to face accommodation challengesDespite the introduction of substantial supply in late-2013, occupancy rates quickly rebounded 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. However, the projected number of new supply remains inadequate with only 23 new rooms set to complete this year.

With limited existing supply and weak pipeline, 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 expatriates in search of better quality serviced residences.

Forecast Direction

2Q 2014 – 2Q 2015

New Supply

Occupancy

Rent

2 Research & Forecast Report | 2Q 2014 | Yangon | Serviced Apartment Market

Market will remain undersupplied in the next two to three yearsThe 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 accommodation 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 - collectively 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.

This year, the total room stock is projected to expand by a meager 2% compared to 2013’s notable 54% growth. Slated to complete in the third quarter is Residence @ 26 by Myanmar Seilone, to comprise a small share of 24 rooms in Sanchaung Township. Succeedingly, the stock will remain stable until the completion of Four Rivers Kokkine Residences (23 rooms) in the next six to eight months.

However, over the five year span, developers have laid out construction plans to deliver large-scale serviced residences forming part in most mixed-use developments namely, HAGL Myanmar Centre, Kantharyar Centre, and Golden City.

Besides the existing Shangri-La residences, new international and foreign brands have likewise been appointed to operate some other upcoming developments, such as, the Sebel Yangon Myat Min under the Accor group; Somerset (68 Residences), by Singapore-based CapitaLand’s The Ascott Limited; and the Daewoo Amara Serviced Residences, to be managed by a Korea-based hotel and serviced apartment operator, Lotte.

While the serviced residences market in Yangon is in the process of taking shape, existing and future supply remains incomparable to most ASEAN countries. With limited current stock and only over 1,300 rooms currently being built, the number is much lower than neighboring city, Bangkok, with a projected cumulative stock of over 18,800 units by the end-2016.

Foreign banks to stir demand for quality serviced residencesThe city-wide average occupancy rate continued to improve in the second quarter after the sudden drop witnessed in end-2013. Since the 8% artificial decline in rate, due to the addition of a substantial supply, the market consistently rebounded during the last six months, to end at 96%. In addition, the average occupancy rate increased by 3.7% QoQ, and 7% HoH, following the strong take-up rates in Shangri-la Residences and SOHO Diamond. Meanwhile, occupancy levels in Micasa, Marina, Golden Hill, and Sakura Residences remained at an all-time high while the available inventories on the other serviced residences are rapidly being taken-up.

Yangon Serviced Apartment Stock

Source: Colliers International Myanmar

Yangon vs. Bangkok Services Residences Supply Stock

Yangon vs. Bangkok Services Residences Supply (Room) Pipeline

Source: Colliers International Myanmar

3 Research & Forecast Report | 2Q 2014 | Yangon | Serviced Apartment Market

Rental rate for one and two-bedrooms continues to trend strongly upwardsRental rates in the 2Q 2014 were relatively stable resulting from relatively lower leasing deals owed to limited availabilities. However, the rates remain extensively 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 units were unchanged QoQ but is up by 3% and 5% YoY - to average at USD 7,015 and USD 8,920 per month, respectively. The lowest rental rate was at USD 2,300 per month in Espace Avenir Executive Residences, while the highest was at USD 15,000 per month for a four-bedroom unit in Shangri-La Residences.

Source: Colliers International Myanmar

Unlike the stable rate in three and four-bedroom, a slight uptick in rent was recorded for a two-bedroom unit at 0.5% QoQ, and a 2.0% increase in one-bedroom unit. The rental forecast direction for both unit types is to trend strongly upwards backed by the growing number of expat individuals and couples.

The average occupancy rate is geared to hit the sub-99% level, as in 2011 and 2012, as corporate accommodation requirements strongly rise amid inadequate new supply. In fact, data from the Directorate of Investment and Company Administration (DICA) reveals that as of 2Q 2014, there are now a total of 3,032 foreign-based companies and more than 70 joint ventures operating in Myanmar. These companies, the majority of which are based in Yangon, potentially employ at least three to five expatriates, and even higher as in the case of the recent entry of the Oil & Gas, I.T., and Telecom industries.

Consequently, the supply shortage situation is expected to be more pronounced once the government awards foreign bank licenses in the succeeding months. This, together with the opening of the stock market in 2015, will similarly signal the growth in the finance industry – translating in an upsurge in demand going forward. Besides supply, quality serviced residences will likewise be sought after as the requirements engaged in this growth sector are either for executive posts or highly-paid expatriates. However, as investment further picks up, the surge of lower paid expatriates will further boost demand particularly for reasonably priced options which are scant at present. The demand is reinforced with the recent hiring of local companies for foreign workers; and the development of Thilawa Special Economic Zone going forward.

Service Apartment Average Occupancy

Source: Colliers International Myanmar

As the only branded serviced apartment in Yangon at present, Shangri-La Residences currently offers the highest rental range of two to four-bedrooms, catering to many executive expatriates. Similar future branded serviced residences are highly likely to introduce parallel level of rates once opened.

Average Serviced Apartment Rental Rate by Unit Type

Karlo PobreResearch Manager Research & Advisory+95 (0) 931 336 099karlo.pobre@colliers.com

Theint Theint ThwinResearcher Research & Advisory+95 (0) 950 267 22theint.thwin@colliers.com

Tony PiconManaging Director | Myanmar+95 (0) 942 103 4026antony.picon@colliers.com

Copyright © 2014 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Colliers International Myanmar Unit 7/C (6th Floor) White Cloud Building, No. (138/142) Thein Phyu Road, Botahtaung Township Yangon Myanmar TEL +95 (0) 931 491 678

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