Yangon | Serviced Apartment Market
Rising investment interest for serviced apartments observed
Serviced apartment supply was unchanged since the completion of Inya Myaing and the Residence@26 in 4Q 2014.
Additional stock in 2015 appears inadequate at 166 units amid strong pre-commitment rates for new developments.
Besides heeding to the shortage in supply, developers are also keen in introducing reasonably sized one and two bedroom units, a preference for most expatriates.
Occupancy rates remained at an all-time high, moderately improving at the end of 1H 2015 versus the same period last year. Both occupancy and rental rates are projected to be stable for the remainder of the year.
Supply to remain weak in 2015
The number of new serviced residences introduced in 2014 was low, with only 71 additional units added. This is significantly less than 2013, when 348 units were delivered. Since the completion of sizeable developments SOHO Diamond and Shangri-La Residences in 4Q 2013, only two new small-sized projects have been introduced, including The Residence@26 by Myanmar Seilone and Inya Myaing Serviced Apartments by Green Vision -in Sanchaung and Bahan Townships, respectively. Additionally, 40 more rooms were added at Micasa in 2014 through a refurbishment project.
Meanwhile, the total supply of serviced apartments remained flat over 1H 2015, with no additional units introduced. Over 2H 2015, only 166 units will come online. In particular, Sakura Residence is heading for an expansion with some 140 new units to be delivered in 3Q 2015. The first tower was completed in 2002. The Kokkine Residence by Green Vision Construction Co., Ltd, will consists of 26 units, similarly scheduled to open in the same quarter.
At present, Yangon’s total supply stock is at 1,061 units. The current low-level inventory will continue to be inadequate in satisfying demand generated by an increasing number of expatriates in Yangon. However, developers are now beginning to take heed of the city’s chronic supply shortage. The stock is set to double over the next five years as new and large-scale developments are completed.
Projects such as HAGL Serviced Apartments, Daewoo Amara Serviced Residences, Somerset @ 68 Residences, Wyndham @Kantharyar, Golden City, Accor Sebel Yangon Myat Min, and Polo Club Asia will significantly increase the supply stock, collectively adding over 2,000 units. Colliers estimates that the market will yield an average of over 400 units a year from 2015 to 2019, higher than previously forecasted – however, slow construction activity at some developments may cause delays in the projected pipeline timing.
New projects are soon to be revealed, as investors and developers alike are expressing stronger interest amid the robust rental demand. Moreover, some are now beginning to realize the strong requirement for reasonably sized one and two-bedroom units given the high pre-commitment rates received in Sakura Residences 2 and Kokkine Residence. However, affordability remains an overall hindrance among many expatriates, while the average rental rate in Yangon remains relatively expensive than most of the ASEAN markets.
Occupancy up 1%, rental rates mixed YoY, but to remain stable
As at end of 2Q 2015, the citywide average occupancy rate fell slightly to 97% QoQ – likely reflecting the low season for shorter stays. However, the rate was up by one percent compared to the same period last year. The occupancy rate of serviced apartments in the Outer City zone remained strong, at almost fully occupied-level during 2014 and approximately 98% as of 2Q 2015. Concurrently, the Inner City zone witnessed a small increase in occupancy, slightly held back by an occupancy decrease in a particular serviced apartment. The development has experienced occupancy volatility over the past year as a result of tenants’ flight to better quality. Overall, demand remained positive in the Inner City zone, driven by the takeup at 26 Residence, SOHO Diamond and Shangri-La Serviced Apartment.
As of 2Q 2015, 1,030 units were occupied, an increase of approximately 150 units since 4Q 2013. The forecast direction for the citywide occupancy rate is for it to remain stable – between 97% and 98% by the end of 2015.
In the long term, the continuous entry of foreign companies coupled with the growing manpower requirements for expatriates will bolster demand. Data from the Directorate of Investment and Company Administration (DICA) reveals that at the end of 2014, there are now a total of 2,052 foreign based companies in Myanmar. The number has almost tripled since the economy opened in 2012. Moreover, these companies normally require at least two foreign skilled-professionals, even higher in some particular industries.
The demand is anticipated to surge in the middle term. Once the government further awards foreign business licenses reinforced with the realization of the Thilawa Special Economic Zone, accommodation requirements for foreign expatriates will reach new record high going forward.
The average rental rate of some unit types in Yangon experienced a slight correction following the completion of 26 Residence and Inya Myaing Residence, which both have relatively lower rental rates. As of 2Q 2015, rates for studio and one-bedroom units declined by 1% and 1.5% QoQ, respectively, driven by the introduction of mid-tier serviced apartments. The other unit types were relatively unchanged QoQ and YoY, from 2Q 2014 to 2Q 2015.
Overall, rents should remain generally stable over the next 12 months, given the projected increase in both supply and demand. However, the increasing supply of serviced apartments coupled with the introduction of notable rentable residential condominiums could indicate downward pressures on rental rates in the long term.
For more information please contact:
Research & Advisory
+95 (0) 931 336 099
Adrian Soe Myint
Analyst Research & Advisory
+95 (9) 976 895 535
Managing Director | Myanmar
+95 (0) 942 103 4026
Unit 7/C (6th Floor)
White Cloud Building,
No. (138/142) Thein Phyu
Road, Botahtaung Township
TEL +95 (0) 931 491 678
Source: Colliers International Myanmar