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Colliers Property Report – Yangon Office Market H2 2015

Research & Forecast Report
Yangon | Office Market
H2 2015

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Market Indicators

  • Yangon office stock ended at over 230,000 sq m of leasable space in 2015, more than twice the previous year. The pipeline remains healthy with more than 100,000 sq m of office space to be introduced annually in the next three years.
  • The requirements continued to rise albeit at a more modest rate. The take-up rate was hampered by the sudden surge in new supply amid the lag in demand – owing to the recently concluded general elections.
  • The positive international sentiment regarding the recent election bodes well for the business environment. Office demand will remain on an upward trend as the government gears up to liberalize new investment sectors

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Yangon office supply stock more than doubled in 2015

In 2015, the market witnessed a surge in new office supply with close to a 130,000 sq m of added leasable space. This drove the total stock to more than double since 2014.

The large majority of the added supply came from the Inner City Zone of which the HAGL office buildings contributed a significant amount. Comprising of two towers, HAGL Myanmar Centre currently represents the largest office space in the city.

Also introduced in the H2 2015 were Maha Land Office by Mottama Holdings., Ltd, in Bahan Township, and Uniteam Office Tower by Uniteam Marine in Sanchaung Township. A total of eight new office buildings were introduced in 2015, the highest annual new supply recorded to date.

The future stock looks set to continue to build up at least for the next three years. Fourteen office buildings are now under construction. This translates to over 300,000 sq m of future leasable space, more than double the current stock.

Besides the rising supply of office space, the emergence of quality developments will also become more apparent. In 2016, six new office buildings are slated for completion, including top-tier projects Vantage Tower in Kamaryut by Myint & Associates and 8 Mile Business Centre in Mayangone Township by Myanma Awba Group.

Downtown Yangon’s quality stock will similarly be reinforced with the opening of Sule Square (Shangri-La Group) and Junction City Office Tower (Shwe Taung Development Co., Ltd., & Keppel Land) towards the second half of the year. Both projects are located in Kyauktada Township, as are the previously completed Sakura and Centrepoint towers.

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Healthier pipeline of quality office developments

Many of the recently introduced projects still fall short of international standard specifications, nonetheless the quality is beginning to improve. The exterior and interior finishes are adopting better standards, while the designs are becoming more efficient.

Colliers estimates that over 120,000 sq m of international grade office spaces are set to be delivered in the near future. This will likely exert downward pressure to the quality of older top-tier offices, predominantly in Downtown.

Improved quality offices has also started to surface in the Inner City Zone evident to the recently completed HAGL Towers; while in the medium term, Crystal Tower, Pyay Office Tower, and Kantharyar Office will follow suit.

The market is most likely to see recurring flights to quality in the near to medium term as better grade office developments become increasingly available. The location, size, exterior & interior finishes, technical specifications, and property management are some of the key parameters which Colliers uses to define these office projects.

Occupancy rate to improve gradually despite surge in new supply

The significant stock added in Q4 2015 has resulted in a dramatic 36% drop in occupancy on a quarterly basis. The rate has similarly witnessed a downward trend since Q2 2015 as office expansions and new requirements were deferred in lieu of the general elections last November. Nonetheless, the annual net take-up continued to increase albeit at a modest pace. In 2015, the occupancy rate ended at 47%, translating to an occupied stock of over 110,000 sq m – up by 15% YoY.

The Inner City Zone witnessed the highest decline in occupancy following the delivery of over 95,000 sq m of gross leasable space. Meanwhile, the occupancy level in both Downtown and the Outer City Zone remained generally stable quarter-on-quarter, but declined on an annual basis.
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Given the city’s low-base office stock, a sudden growth in new supply could drive drastic movements in occupancy – a commonplace occurrence in a frontier market such as Yangon.

Going forward, the positive reaction to the recently concluded general election bodes well for the office market. Colliers predicts the occupancy to improve gradually in the next twelve months as expansion plans from existing tenants materialise, strengthened with the inflow of new market entrants, and the relocation from villas to proper offices.

Moreover, the introduction of Junction City Office Tower and Sule Square will help sate demand in Downtown as multinational companies expand and establish better presence, given the new buildings’ premium addresses. The increasing stock of better quality office developments elsewhere in the city will be an added impetus. In particular, interest for office spaces in Yankin Township will be more pronounced on the back of its rising business activity. This will result in to a recovery in the Inner City Zone’s occupancy rate in the succeeding months.

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The frequent upward and downward shifts in the occupancy level is expected in new and developing markets such as Yangon. In the long term, Colliers sees demand to remain in a lengthy upcycle backed by the country’s strong economic reforms, liberalizing new investment sectors – especially the manufacturing, insurance, bank and finance industries, among others.

Rental rates to remain relatively stable in the next twelve months

The citywide average office rental rate ended at USD 58.68 per sq m per month in 2015, a decrease of 3% and 17% on a quarter and annual basis, respectively. As with the occupancy, the drop in the average rent is attributed to the sudden surge in supply amid the held back demand.

In 2016, a competitive playing field is anticipated as stock availability remains ample. The market will slightly favour tenants while landlords offer discounted rates and other incentives, at least in the near future. Colliers predicts the rental rates to remain generally stable in the next twelve months. However, the opening of international quality office developments will likely drive upward pressure on prime rents towards the latter part of the year.

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Authors:
Ye Tun Htet Paing
Researcher
Research & Advisory

The Htet Oo
Thehtet.oo@colliers.com
Analyst
Research & Advisory
+95 (0) 943 190 707

Karlo Pobre
Senior Manager
Research & Advisory
+95 (0) 979 573 3378
Karlo.Pobre@colliers.com

Tony Picon
Managing Director | Myanmar
+95 (0) 942 103 4026

Colliers International
Myanmar
Room No. B 803, 8/F., Tower B,
Myawaddy Bank Luxury Complex,
No. 151, War Dan Street, corner of
Bogyoke Aung San Road,
Lanmadaw Township, Yangon,
Myanmar

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