Research & Forecast Report
Yangon | Office Market
Rosy outlook for top-tier office developments
As at end of the 3Q 2014, grade A local quality office stock was the same at over 34,000 sq m. However, this is about to change as the supply is set to expand ten times more in the next five years or with some 281,000 sq m of potentially high-quality office space in the pipeline. More developers are now geared to introducing top-tier office projects, confident in securing high returns from the current attractive rents.
The office demand prospects remain healthy as the country’s macroeconomic fundamentals transition positively. The improving business climate will result in the gradual rise of inward foreign investments and further expansions in local businesses. The direction on the city-wide average occupancy rate is set to breach the 90%-level in the next twelve months in anticipation of the surge in demand.
Premium rental rates have remain artificially stable in the past three quarters but is set to move in an upward trajectory in the near term. New waves of tenants will eventually set up office in Yangon, such as manufacturing MNC’s and those engaged in the banking & finance industry – of which many will likely prefer moving to top-tier offices.and those engaged in the banking & finance industry – of which many will likely prefer moving to top-tier offices.
Premium office space is scarce; existing quality remains low
In anticipation of the continuous growth in demand, the total new office supply is estimated to be twice higher this year compared to that in 2013. In the first nine months of 2014, some 22,716 sq m of office space were introduced, while over 37,000 sq m more are scheduled to complete in the rest of the year.
The heightening number of foreign companies entering Yangon along with the strong local expansion plans drove some developers to construct or refurbish mid-scale projects, in an aim to serve the pent-up demand. This situation has been evident over the last six months such as with the opening of MICT Park. This campus-type development, consisting of eight mid-rise buildings, absorbed office space requirements from businesses engaged in various industries – information & technology, supply distribution, and even foreign training centres. Similarly, the recently renovated and refurbished Prime Hill Business Center and York Center captured requirements from other tenants as availability elsewhere in the city remains limited. However, most of these projects are still considered substandard by international benchmarks and that good quality office space in Yangon emain scarce.
Within the next five years, the market is set to witness unprecedented growth in new office developments. Roughly, an average of 70,000 sq m of leasable office space is expected to be introduced annually from 2014 to 2018. Although the pipeline reflects high figures, the supply-stock comes from a low base and that the average size is only comparable to a couple of high-rise office buildings in the rest of the ASEAN commercial centers. The inadequate future supply will be more pronounced as the government further permits foreign licenses going forward and as local companies expand.
More top-tier office projects under way
At present, there are only about four top-tier office buildings in Yangon namely, Sakura Tower, FMI Centre, Union Business Centre and Centrepoint Towers. These collectively represent approximately 38,000 sq m of Grade A local standard office quality but not by international accepted criteria. However, the supply of better quality and top-tier offices is expected to increase in the medium to long term as developers are keen to benefit from the attractive returns while Yangon’s office rental rates remain one of the highest in the region.
Some of these projects are slated to come online starting this year with the opening of Union Financial Centre in Downtown Yangon; and potentially in future mixed-use and or integrated
upcoming developments elsewhere in the city, such as Sule Square, HAGL Myanmar Centre, Dagon City 1, Golden City, and Kantharyar Centre. As new and international standard projects will soon be introduced in Yangon, the office grading and classification will become more evident.
Strong demand prospects amid positive economic environment
In 3Q 2014, the city-wide average occupancy rate remained generally stable at the sub-88% level despite the introduction of over 7,000 sq m of new office space. As at the end of the quarter, the total occupied office stock breached the 100,000 sq m mark, expanding by 38% from 2Q 2014. The occupancy rate was strong, being 4% higher than the same period last year.
Though a slight increase in vacancy transpired in the Inner City area, driven by the growth in new supply, the high precommitment rates and the extremely limited availability in the Outer City area buoyed the over-all occupancy for the quarter.
While Downtown Yangon continued to generate the lowest occupancy rate in the city, demand prospects in the near term are especially healthy. The anticipated entry of the foreign banks suggests strong demand for premium addresses and quality office spaces. As these preferences are limited in Yangon, new and better-quality office projects in Downtown, such as Union Financial Centre and The Strand Office Complex, are expected to benefit from the incoming requirements. Both office buildings are slated to complete in the next six months.
Moreover, the launch of the Thilawa Special Economic Zone will eventually lead to an influx of MNC’s requiring administrative and or management offices in Downtown. Also, the expected opening up of other large potential office locators such as insurance companies and securities houses in the medium term will add significantly to the demand. Overall, the positive shift in political reforms, the upcoming ASEAN integration, and the further opening-up of the economy, are upward pressures on office take-up. In the next twelve months, Colliers predicts that the average occupancy rate will grow by over 4%, to breach the 90%-level.
Premium rents temporarily stable The average office rental rate ended at USD 70.42 per sq m in the third quarter of this year. This translates to roughly USD 14,000 per sq m monthly for a 200 sq m office unit. The city-wide average rent was slightly down by 1.7% mainly due the introduction of SOHO Diamond Bldg. D offering relatively lower rental rate than the other similar building type. However, the city wide average rent was 38% higher compared to that in 3Q 2013.
The average office rents remained the lowest in the Outer City zone at USD 56 per sq m monthly but will mostly likely increase going forward along with the completion of better quality office projects in the medium term. Meanwhile, the average rental rates in the Inner City zone were up by close to 4% QoQ. Downtown Yangon, all composed of top-tier offices, continued to register the highest city-wide rental rate at USD 87 per sq m monthly, being artificially stable since the fourth quarter of 2014. The average rental rate in Downtown Yangon is in for a correction with new mid-grade office developments slated to complete in the next twelve months. However, the average premium rent will be on an upward trajectory as new waves of major locators move to open in future grade A offices such as Sule Square Commercial Center and The Landmark.
Research & Advisory
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Theint Theint Thwin
Research & Advisory
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Managing Director | Myanmar
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Unit 7/C (6th Floor)
White Cloud Building,
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Road, Botahtaung Township
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Source: Colliers International Myanmar