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Sunday 20 November 2011

A SURGE IN SERVICED APARTMENTS

THE NATION Issued date 16 November 2011

Early Sukhumvit remains the most popular venue.

More than 800 new serviced apartment units are scheduled to be completed in the fourth quarter of this year and early Sukhumvit retains the vast priority of the new supply, while Central Lumpini has also become a preferred location to live in, with a surge in more Grade A units being built.

According to Colliers International Thailand, approximately 200 units have been completed and are already occupied, out of the nearly 1,000 units that are scheduled to be completed in 2011. Sukhumvit Road still retains its mantle as the most popular location for serviced apartments, mainly due to the fact that more than 70 per cent of total units scheduled for completion in Q4-2011, will be located along the initial stretch of this road.
Total supply of serviced apartment units, for the end of 2011, is expected to be approximately 17,860.

Distribution of serviced apartments differs according to location, based on the particular profile of each area. Central Lumpini, for example, contains many large embassies and is therefore seen as being the most prestigious location to live in and, as such, contains more grafe A units. Late Sukhumvit also contains more grade A units, due to the existence of a number of luxury branded aprtments in Thong Lor Road, catering to the large Japanese expatriate community there. However, early Sukhumvit remains the preferred choice for grade B apartments, as it is a more unpretentious and relaxed location, which also explains the location of more Up-Scale, rather than Luxury hotels. 'Other' areas contain more grade C products, mainly due to their distance from the centre.

More than 800 units are scheduled to be completed in Q4-2011. Sukhumvit Road, alone, will host the vast majority of a new supply this year. More than 75 per cent of the new units scheduled to be completed in 2011 are located on Sulhumvit Road, with nearly 80 units also scheduled for completion in 2012 in the Sukhumvit area. The main driver is not only the popularity of this road as a residential destination, but also the fact that the relative land price is lower than more central locations and it is also convenient for the BTS line.

The addition of new retail centres, such as "Terminal 21", will add to the appeal of this road to both tourists and expatriates alike. Average occupancy rates in Q3-2011 have increased from the previous quarter and compares favourably with the same quarter last year. However, last year was a troubled one for the sector, mainly due to the political upheavals.

Occupancy rates in all location increased deom the previous quarter, especially in Central CBD and Central Lumpini, which increased approximately 9-11 per cent, mainly due to a reduction in rental rates.

Growth in occupancy was partially fuelled by a small fall in rental rates overall and the addition of significant new supplies in Q4-2011 are more than likely to lead to a weakening of the sector, after bouncing back strongly after Q2-2011. Although the political situation has stabilized for the short and medium term, growing concerns regarding the global financial situation, as well as the short term impact of massive flooding throughout Thailand, could lead to a more difficult period for the serviced apartment sector.

Meanwhile, Patima Jeerapaet, managing director, Colliers, said that for the remainder of the quarter, residential launches are most likely to remain subdued, due to the current sentiment and logistics. However, unlike the post May 17, 2010 situation, when buyers jumped straight into the market, many will now probably be more cautions about making a big decision on property purchases, until ongoing events have ended and an analysis of the flood situation is undertaken.

The decision on whether to purchase landed property, versus a high-rise condominium unit, will most probably find favour in the latter, due to the recent floods experience, but people will, nevertheless, continue to evaluate areas that are less prone to floods.

"Even if your high-rise home is protected you still don't want the area around it inunfdated with floodwater for weeks", pointed out Jeerapaet. However, long delays in buyers coming back to the market will result in a pent-up demand, very likely to increase until, eventually, a significant number of launches will take place.

According to Tony Picon, Associate Director at Colliers, condominiums will become even more popular than they were before the floods. In the aftermath of the floods, many who were forced to evacuate to relief centres may now rethink their options. "You may now find families encouraging one of their number to purchase a condominium unit, even helping with the financing, as it would then function as a back-up residence for the family in the event of a recurrence".

At the high-income end of the market the same reasoning could add to the trend for purchasing second homes in resorts, such as Hua Hin, or Pattaya. "Many fled to these resorts during the flood inundation, especially people who didn't need to work in Bangkok, or children and the elderly", said Monchai Orawongpaisan, senior manager for residential project sales and marketing. Family pressure could therefore result in more property being purchased, not only as a weekend retreat, but also as a back-up residence in emergencies.

"We could see significant activity in the market during the first half of next year, based on this trend, Hua Hin, Pattaya and other nearby resorts", he added.

Although high-rise accommodation will continue to prove more popular, it is considered that landed property will still retain a strong presence in the city. Dire warnings of global warming leading to more regular flooding problems, including flash floods from heavy downpours, may lead to a future trend of simply opting for houses on stilts, which reflect a common mode of living in the past that catered to the possibility of flooding.

Picon pointed out that the problem for buyers of finding suitable locations relatively safe from future floods, is that effects can vary, based on a number of factors, as we have witnessed during the latest situation.

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