20 January 2017

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Myanmar │ Real Estate

Serviced Apartment Sector

Market Update

Rental continues on its moderate recovery path As at 4th quarter 2016, the serviced apartment rental in Yangon

increased by 0.3% quarter-on-quarter (q-o-q) and 0.1% year-on-year to

US$5,583 per month. As compared to the peak in 1Q2015, the overall

rent has declined by 6.7%. While rent has weakened compared with

previous peak, serviced apartments in Yangon are still relatively more

expensive than other emerging market. The average rent of 1-bedroom

was about US$4,000 per month, 2-bedroom at US$5,800, 3-bedroom at

US$6,800 while 4-bedroom at US$7,800 per month. This is comparable

with the serviced apartment rents in prime Singapore locality.

Market occupancy remains high As at 4Q 2016, the overall market occupancy rate was at 96.5%, an

improvement of 3.6 percentage points over the last quarter. The

increase was mainly due to the 16-percentage-point q-o-q

improvement in occupancy rate at MiCasa Hotel Apartments, one of the

oldest serviced apartment in Yangon. The occupancy at the relatively

newer offerings like Marina Residence, Golden Hill Tower and Shangri-

la Serviced Apartment remained 100% occupied in the quarter, with

long waiting lists of at least 3 months. In general, occupancy rates at the

serviced apartments have averaged above 90% since the country

opened its economy in 2012.

Lack of new construction starts will prevent oversupply Looking ahead, the continuing hiatus in new construction starts in

Myanmar is a positive outcome for the market over the medium term,

as it was in danger of running into a severe oversupply scenario

previously. This will give the market time to absorb the new completions.

Hoang Anh Gia Lai Myanmar Centre and Pan Pacific Serviced

Apartments are the only 2 major projects expected to be completed by

2017-18. We expect this to have some downward pressure on rents for

the older serviced apartments.

More catalysts in sight for the sector There are numerous economic drivers falling into place that could spur

the development of Myanmar in the coming years. The continuing

process of political, legislative and economic reforms are expected to

open up more opportunities for businesses and attract even more

foreign companies to invest in the country. Thus, we expect the serviced

apartment sector to continue to benefit from the resulting inflow of

foreigners. The Government has recently issued warnings that Airbnb is

effectively not allowed in Yangon and all visitors on tourist visas are

required to stay in either hotels or serviced apartments. This is expected

to further increase demand for serviced apartments in Yangon. The

serviced apartment sector remains as our favourable sector for exposure

to the Yangon real estate market.

Figure 1: Overall Yangon Serviced Apartment Rental Index

Source: REMS Research

Note: The index is calculated based on our survey basket which comprises of

979 units of good quality serviced apartments in 5 serviced apartments which

have more than 100 units.

Figure 2: Market occupancy remains high

Source: REMS Research

REMS RESEARCH

Contact Us mail@rems.asia

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Best Performing Sector

20 Jan 2017

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Figure 3: Myanmar has the highest GDP growth in SEA Figure 4: FDI rebounded sharply in 2015-16

Source: IMF, REMS Research

Note: The past 3 years refer to 2013, 2014, 2015 while the next 3 years refer to 2016, 2017

and 2018

Source: World Bank, REMS Research

Note: Year ends on March.

Figure 5: Surge in visitor arrivals into Myanmar Figure 6: Limited stock of serviced apartments

Source: Ministry of Hotel & Tourism, REMS Research Source: Ministry of Hotel & Tourism, REMS Research

Figure 7: Rental Index by room type Figure 8: Occupancy rate by room type

Source: REMS Research Source: REMS Research

Email us at mail@rems.asia for Past Research Done by REMS Advisors

Yangon Office Market Report 3Q 2016

Yangon Serviced Apartment Market Report 3Q 2016

Terms of Use: Any reproduction or distribution of this report is prohibited unless authorised in writing by REMS Advisors Pte Ltd. This report is provided for general information only and should not be treated as advice for any specific user or

property. Users of this report should consider this report as one of the many factors in making their investment decision and should seek specific investment advice. REMS Advisors and the authors of this report shall not accept and hereby

disclaim all responsibilities and liability for consequences arising out of any use of this report.

20 January 2017

1 Terms of use can be found on the last page. All rights reserved.

Myanmar | Real Estate

Yangon Office Sector

Market Update

Office rent inched up 1.4% q-o-q As at 4th quarter 2016, the average asking rent of office space in Yangon

was between US$50 to US$60 per square meter per month, a marginal

improvement of 1.40% from the previous quarter. This also marks the

3rd consecutive quarter of increase in office rents. The improving rent

was expected as the market has gradually absorbed the influx of supply

from Myanmar Centre and its landlord starts to inch up its asking rent.

Market office occupancy rate increased slightly to 67% Based on our field survey, the overall office market occupancy increased

by 2 percentage points in 4Q2016. This continues the improvement in

rent since reaching a trough in 4Q2015. The improving demand is

generally led by tenants moving from sub-standard offices or stand-

alone homes into the office buildings covered in our survey. The sharp

decline in rent in 2015 was due to the completion of Myanmar Centre.

With 870,000 square feet to lease, the owners of Myanmar Centre

offered very low rentals in a bid to attract tenants. This led to the

gentrification of tenants from older office buildings like Sakura Towers

and Centrepoint Towers.

Completions expected to surge beyond 2017 There are several major office building projects in the pipeline. In

1Q2017, we expect Sule Square and Junction City to welcome their

tenants. Over the next few years, several other large projects slated for

completion include Times City by Crown Advance Construction, Crystal

Tower by Shwe Taung Group, Myanmar Centre Phase II by Hoang Anh

Gia Lai and Golden City by Golden Land. If all the current ongoing

projects are completed, we could see a total of around 1.8 million square

foot of new office space added to the office stock over the next 2-3

years. This is approximately 1.4 times the amount of existing office stock

which will mean that the office market could be facing a situation of

oversupply for a few years.

Short term outlook remains unfavourable While the macro-indicators point to an exciting future for the Myanmar

real estate market, we expect the market to suffer some short term

weaknesses due to the large number of new completions in the coming

few years. Demand is growing slowly as corporates are still reluctant to

expand aggressively. We expect tenants to move to better quality office

buildings that are within integrated developments. Older buildings and

poorly managed office buildings are likely to bear the brunt of the

easing of rents and increasing occupancy. With limited catalysts in sight,

we advocate a more cautious stance on investment into new office

development and maintain our negative outlook on the sector.

Figure 1: Yangon Office Rental Index inched up

Source: REMS Research

Figure 2: Market occupancy remains at a level of 67%

Source: REMS Research

REMS RESEARCH

Contact Us mail@rems.asia

Visit Us www.rems.asia

Least Preferred Sector

20 Jan 2017

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Figure 3: Myanmar has the highest GDP growth in SEA Figure 4: FDI rebounded sharply in 2015-16

Source: IMF, REMS Research

Note: The past 3 years refer to 2013, 2014, 2015 while the next 3 years refer to 2016, 2017

and 2018

Source: World Bank, REMS Research

Note: Year ends on March.

Figure 5: The number of new companies formed surged in the past

four years

Figure 6: Existing international quality office space in Yangon

Source: Central Statistical Organization, Ministry of National Planning and Economic

Development, REMS Research

Note: Year ends on March

Source: REMS Research

Figure 7: Yangon Office Rental Index declines since 2Q2013 Figure 8: New offices ready to occupy in 1Q2017

Source: REMS Research Source: REMS Research

Email us at mail@rems.asia for Past Research Done by REMS Advisors

Yangon Office Market Report 3Q 2016

Yangon Serviced Apartment Market Report 3Q 2016

Terms of Use: Any reproduction or distribution of this report is prohibited unless authorised in writing by REMS Advisors Pte Ltd. This report is provided for general information only and should not be treated as advice for any specific user or

property. Users of this report should consider this report as one of the many factors in making their investment decision and should seek specific investment advice. REMS Advisors and the authors of this report shall not accept and hereby

disclaim all responsibilities and liability for consequences arising out of any use of this report.

EP12 • THEEDGE SINGAPORE | NOVEMBER 28, 2016

OFFSHORE

Investors searching for the next real estate

that could offer extraordinary returns have

been asking REMS Advisors for our views

on investing in the Myanmar real estate

market, especially after the US abolished all

sanctions against Myanmar on Oct 7.

We started exploring the market in 2012,

during the initial frenzy over the last untapped

real estate market in Southeast Asia. In 2015,

the peaceful election and subsequent transition

to a civilian government further raised expec-

tations of a country’s being finally unleashed

from its shackles to realise its potential.

Expectations not matched by realityA year on, it has become apparent that a lot

of work remains to be done. Participants in

the real estate market have been spooked by

the government’s decision to cancel the five

large projects that had been pre-approved

and already in various stages of construc-

tion; the stop-work orders issued to almost

200 high-rise construction projects; and the

continuing lack of clarity on the implemen-

tation of the Condominium Law. The lack

of financing for developers and end-users

is also inhibiting the growth of the market.

These have resulted in weaknesses in the

Yangon real estate market.

High-end residential: Foreign purchasers

needed to stimulate the market

The residential sector in Yangon almost ground

to a halt in 2015 and only sporadic sale activi-

ties resumed in 2016. The much hyped-about

Condominium Law was finally passed in Jan-

uary 2016. The law allows foreigners to pur-

chase and own condos subject to certain types

of underlying land title. The units should be

above the sixth floor and total foreign owner-

ship is capped at 40%.

As the associated by-laws or regulations were

not put in place, however, foreigners remain

locked out of the market. In addition, there is

der more pressure in the next

few years, with the imminent

completion of various large of-

fice developments such as Sule

Square and Junction City. Old-

er buildings and poorly man-

aged office buildings are likely

to bear the brunt of the easing

of rents.

Serviced apartment: Resilience

due to lack of supply

The serviced apartment sector

has been the most resilient in

Yangon. Average rents eased

7% in 3Q2016 from its peak in 1Q2015 (see

Chart 2). The key reason for its resilience is

the general lack of new completions over the

last two years.

Despite easing rents, overall occupancy rates

have remained above 90%. Newer serviced

apartments are still operating at near full oc-

cupancy and have long waiting lists. The larg-

er three- and four-bedroom apartments seem

to be enjoying an increase in demand in re-

cent quarters.

Ingredients for growth of real estate market are in placeAll the theoretical factors that could drive de-

mand for real estate in Myanmar are falling

into place. The economy enjoyed its fastest

pace of growth over the last three years and is

expected to be the star performer in the com-

ing three years, according to The Internation-

al Monetary Fund’s forecast. Foreign direct in-

vestments are climbing after a hiatus in 2015.

Effectively, the country is now free of sanctions

and that could further boost its FDIs.

An increase in new investments is like-

ly to bring in more foreigners, who will need

hotel rooms, serviced apartments, offices and

retail options. More economic activity is like-

ly to increase the pace of urbanisation. Taken

together, continued economic growth will fuel

the virtuous circle of attracting more people to

the city and increasing demand for real estate.

The slowdown in new construction starts

provides some breathing space for the market

to absorb the large projects that are due for

completion in the next two years.

Investors should be looking at ser-

viced apartments operated by rep-

utable operators, high-end residen-

tial developments and warehouse

or logistics property investments

in Yangon.

Are you ready to investin Myanmar? Without a doubt, we should be

seeing investment schemes or pro-

jects that will be brought by de-

velopers or real estate agencies to

market in Singapore in the com-

ing months or years.

Singaporeans’ insatiable appetite for small

quantum investments in property is apparent

from the positive sales of newly launched res-

idential projects in Singapore and the good

sales momentum for Cambodian residential

projects in recent months.

Thus, Myanmar property might fit into

the low quantum investment space. Investors

should consider five important factors when

investing in Yangon:

• Is there a resale market for the location or

sector they are in?

• Are they getting clear, unencumbered own-

ership of the property they buy?

• Does the developer have the resources, dis-

cipline and capability to complete the pro-

ject as promised?

• Are there people or entities that can help

with absentee management? and

• Can they withstand the risks and policy

shocks that can happen?

Invest a little, diversify a lotIn general, we would like to advocate that inves-

tors consider their appetite for risk when invest-

ing in emerging markets and not invest because

it is cheap. Alternatively, investors should con-

sider taking part in shared investment schemes

(which have clearly defined investment terms)

and allocate small amounts to each investment

and diversify their risks.

Tan Kok Keong is CEO of REMS Advisors and

co-founder of FundPlaces

BLO

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| BY TAN KOK KEONG |

Is Yangon’s real estate market ready for retail investors?

Yangon serviced apartment rental index

Base = 3Q2013

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a large number of units under construction,

which could put the market under some price

and rent pressure in the coming years.

Office: Flight to quality

The prime office segment in Yangon continues

to underwhelm, as the lack of new inbound in-

vestments means that new demand for offices

remains low. The market is also struggling to

absorb the large supply from the completion

of about 874,000 sq ft of the Myanmar Centre

Phase 1. As at 3Q2016, prime office rents con-

tinued to decline, marking the ninth quarter

of decline (see Chart 1).

We expect overall office rent to come un-

The lack of financing for developers and end-users is also inhibiting the growth of the market, resulting in weaknesses in Yangon’s real estate market

E

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ESM

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EARC

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Chart 1

Chart 2

EP4 • THEEDGE SINGAPORE | FEBRUARY 22, 2016

THEEDGE P R O P E R T Y PROPERTY TAKE

Positive catalysts for Yangon’s office sector

Myanmar’s dramatic emer-gence from decades of military dictatorship to a democratically elect-ed government is almost

complete. The largely peaceful polit-ical transition has surprised many. More encouragingly, since the land-slide election win for the Nation-al League for Democracy, the exist-ing government and military leaders have committed to ensuring a peace-ful and orderly transition, while the NLD has taken a conciliatory stance to bring the country forward. A con-tinuation of this collaboration could see a boost in investor confidence to enter the market.

Even in its last breath, the out-going government managed to push through several legislations. In De-cember 2015, the Stock Exchange of Myanmar commenced operations. Last month, the Condominium Act was passed after years of delibera-tions. On Jan 15, the Directorate of Investment and Company Adminis-tration announced that the Myanmar Investment Commission had approved nine foreign investments, three local investments and five joint-venture investments, including two housing projects, one private hospital, 10 gar-ment factories, one heavy machinery rental service and two wooden facto-ries in January. On Feb 11, it was re-ported that Australian PanAust Group had been granted exploration licen-ces for three mining blocks. PanAust is the first foreign firm to receive the licence after a new mining law was passed last December.

These changes in regulations have put in place positive catalysts for for-eign investments. With many foreign investors still waiting on the sidelines, we expect more investments to mate-rialise as the new government begins to take shape in the coming months. Based on an International Monetary Fund report in October 2015, Myan-mar’s economy registered impres-sive growth of an average of 8.5% per annum for the past three years, making it the fastest-growing econ-omy in Southeast Asia. This trend is expected to persist.

Office rent corrected but recovery expectedBased on our office rental index, computed based on a weighted basket of international-quality of-fice spaces, Yangon office rent reg-istered six consecutive quarters of decline as at end-2015. The office rent in 4Q2015 was 11% lower than the previous quarter and 64% lower than its peak. This was largely due to the completion of two office tow-ers in Myanmar Centre in mid-2015. The current rent is at US$55 ($77) to US$65 per sq m a month. We ex-pect the office rent in Yangon to inch upwards, as the demand for office space coming from various sourc-es would help to fill the new supply coming into the market.

Office space demand has slowed but could pick up from 2016Based on our survey of modern high-rise office buildings, the overall office

occupancy rate eased to 64% in 4Q2015. This was mainly due to the completion of Myanmar Centre late in the year. The centre is gain-ing good traction among potential tenants, as it is the first large-scale integrated development to reach the market. The older office buildings, such as Sakura Tower and Centre-point Tower, are feeling the threat of the new entrants, losing tenants to them. Meanwhile, good-quali-ty office buildings, such as the Un-ion Business Centre and Union Fi-nancial Centre, were well taken up, with nearly 100% occupancy as at end-2015.

We expect the overall occupancy to pick up from 2016, as the older of-fice stock might be redeveloped or refurbished. Demand for quality of-fice space could also come from com-panies that have been operating in stand-alone houses and non-Grade A office premises, switching to larg-er and more prestigious, integrated developments. Lastly, foreign busi-nesses are likely to increase their in-vestments in the country, as the new government takes shape and possi-bly opens up more economic sectors to foreign participation.

Increase in new company formation suggests demand could increaseThe potential increase in demand can be observed from the increase in the total number of registered compa-nies. As at March 2015, the number of registered companies was 58,789. This suggests 8,309 new companies were formed within the year, a y-o-y increase of 16%. On average, 7,096 new companies were formed annu-ally in the last four years.

Based on the assumption that an average of 7,000 new companies are formed each year, 20% of the new companies require office space in Yangon, each company employs five people and each person occupies 80 sq ft of gross office space, this will translate into an annual demand of 560,000 sq ft of office space. This

means Yangon would require four new Sakura Towers every year to meet the demand for office space from these new companies.

Limited supply in the near termThere are several office building pro-jects in the pipeline, namely Naing Group Tower II by Naing Group, Sule Square by Shangri-La Group, Times City by Crown Advance Construc-tion and Crystal Tower @ Junction City by Shwe Taung Group. Some of these are expected to be completed in the next two to three years, which might provide short-term corrections in market rents and occupancy.

Flight to quality office spaceFor the Yangon office sector, we ex-pect that the relative lack of quali-ty office stock could result in rental at quality spaces being sustained at current levels. Over the short term, the lumpy nature of large, new com-pletions will result in moderate vol-atility in rents. However, we expect yield compression to begin as the market starts to mature and more in-vestors enter the market. This should provide earlier investors with suf-ficient upside that commensurates with the risk.

Tan Kok Keong is CEO of real es-tate consultancy REMS Advisors and co-founder of Fund places, a real es-tate-dedicated crowdfunding plat-form. He can be reached at kk.tan@rems.asia.

If you wish to contribute columns, please write in to propertyeditor.sg@bizedge.com

| BY TAN KOK KEONG |

Myanmar has the highest GDP growth in Southeast Asia

0

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2

6

8

1

5

3

7

9

Thailand Indonesia Malaysia Philippines Vietnam Cambodia Myanmar

Note: The past three years refer to 2013, 2014 and 2015, while the next three years refer to 2016, 2017 and 2018

Figure 1

IMF,

REM

S AD

VISO

RS

%

Average GDP growth in the past three years Average GDP growth in the next three years

Offi ce Rental Index

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Figure 3

REM

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Index (Base = 3Q2012)

The number of new companies formed

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2013 to2014

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Figure 2

DICA

, REM

S AD

VISO

RS

Average of 7,096 companies formed in the past four years

Note: Year ends in March

Myanmar Centre is gaining good traction among potential tenants, as it is the first large-scale integrated development to reach the market

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