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Scramble to join Bangkok's serviced-apartment expansion threatens to turn into cut-throat competition
While many high-end residential developments, including luxury condominiums, have suffered from sluggish sales so far this year, serviced apartments in central Bangkok that target foreigners have been enjoying the opposite experience.
The number of foreigners working in Bangkok keeps increasing, and the number of serviced apartments under construction keeps rising. The allure of high returns and long-term revenue is drawing many old and new players in the property industry to invest in the booming serviced-apartment market.
Real-estate-services firm Jones Lang LaSalle (Thailand) says Bangkok had 10,350 serviced apartments as of July, with 68 per cent of them pitched at the high end of the market. Of these, 449 units were finished in the first half of the year.
Sukhumvit Road remains the most popular area. It had three new projects - Citadines, Two Three Mansion and Alcove Residence - completed in the first half. Two new projects - Arasia Luecha Park and Tango - opened in the Phaholyothin Road area. There was only one new project - Fraser Suites Sathorn - in the central business district (CBD), which was a second Bangkok project for Singapore's Frasers Hospitality.
And the frenzy continues, with construction expected to finish on another 1,404 serviced apartments by the end of the year, the highest six-month figure in about a decade. Next year, 1,537 new apartments are expected to open, and construction has already begun on a further 1,058 units to be completed in 2009.
Most of the new projects will be managed by big names in the business. The Ascott Group will manage eight new projects for a total of 1,500 units, scheduled for completion in 2009. Centre Point will manage 1,400 units in three new projects, and Oakwood will pick up three projects for a total of 400 units.
From now until the end of 2009, the Sukhumvit area is expected to get 2,504 new serviced apartments, the CBD will get 1,010, and 260 new units will open along the Chao Phya River.
At the same time, more and more foreigners are expected to arrive in Bangkok to work here. As of June, 63,410 work permits had been issued this year, up 10.7 per cent year on year. However, there are many factors affecting demand for serviced apartments, and occupancy rates do not automatically follow the rising supply of foreigners. First, the appreciation of the baht has resulted in an increase in room rates, particularly for those who pay in US dollars. Second, many foreigners are choosing to rent units in existing condominiums rather than serviced apartments.
Overall, there has been a slight increase in rental rates, and the occupancy rate in grade-A serviced apartments has fallen to 80.8 per cent this year, from 85.6 per cent last year.
Most new customers prefer serviced apartments around Sukhumvit Road, particularly Japanese and other East Asians, so the occupancy rate in this area has fallen only marginally, from 85.4 per cent to 84 per cent.
Rental fees have increased at a slower pace than normal. Earlier this year, rates had increased only 0.4 per cent to Bt1,196 per square metre per month, due to falling occupancy rates and increasing costs for those paying their rent in dollars. Some developers were also trying to attract customers by offering lower fees for those willing to lease rather than rent.
Jones Lang LaSalle believes between now and the end of 2009, all developers of serviced apartments will face cut-throat competition as market supply increases significantly. The market will grow 13.2 per cent annually, compared with only 6 per cent over the past two years.
Developers of new serviced apartments are making a big effort to provide international standards to attract new customers from Japan and Europe. Some condominium developers are also setting aside part of their projects as serviced apartments.
Chaiyos Land Development, a relative newcomer to the serviced-apartment business, has spent Bt1 billion to develop the 33-storey Fraser Suites Sukhumvit, consisting of 118 units on 1 rai of land. The project will be managed by Frasers Hospitality of Singapore. Its design is inspired by Thai culture while focusing on in-house entertainment facilities. For instance, all suite units will be equipped to play MP3.
The project opens this month and is expected to reach break-even point within eight years, with a 10-per-cent return on investment. Targeted groups are medical tourists and corporate customers. It expects an occupancy rate of 60-65 per cent in its first year and 80-85 per cent in its second year.
Meanwhile, Metrostar Property has "adjusted" its Sathorn Terrace luxury-condominium project into serviced apartments and changed the name to the Sathorn Vista Bangkok Marriott Executive Apartments. The 31-storey building will contain 184 units of Oriental design. It is expected to be complete by the end of 2009.
Metrostar managing director Ratanachai Phatinavin said the adjustment fit the current economic slowdown and would generate consistent revenue in the long term.
The main target group for the new apartments is foreign executives. Metrostar expects an occupancy rate of 50 per cent in the first year and 80 per cent within three years and annual revenue of at least Bt100 million.
Source : The Nation (26 October 2007) |
