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Colliers Property Report – Yangon Office Stock Q4 2019

Summary & Recommendations

A boost in aggregate supply was documented towards the end of 2019, leading the total stock to
surpass the 400,000 sq meter mark.This is owed to the recent completion of Times City Office Tower . Amidst the observed deferrals in select developments,Colliers still projects Yangon to witness a notable surge in 2020.

Meanwhile, the entry of new supply similarly had a downward impact on both average occupancy and rental levels. In the next six months,Colliers believes that both rates will improve albeit temporarily as sizeable stock will come online in H2 2020. Though, we still see that the market will slightly favour tenants while landlords will continue to offer strategic rates and other incentives,at least in the near future. However,the opening of international quality office developments will likely drive upward pressure on prime rents towards the latter part of 2020.

SUPPLY BREACHED THE 400,000 SQ METER MARK

A revival in aggregate supply transpired towards the end of Q4 2019. In detail, an upsurge of about 11% and 12% on a quarter and annual bases was documented. This very condition is prompted by the recent inauguration of Times City Office Tower in Kamaryut Township. While a total of three projects were initially expected for the last quarter of this year, the stock was still able to surpass the 400,000 sq m (4.3 million sq feet) mark, owing to Crown Advanced Construction Co., Ltd.’s project delivering an additional space of around 43,150 sq m (464,460 sq feet).

 

In lieu of delays, our forecast has slightly changed from the previous quarter, leading us to project a total of seven office developments to complete between 2020 and 2022. For the immediate year, most projects will still be upscale (e.g. Harbour Trade Tower, M Tower, and Y Complex) tier and will only be launched until H2 2020. Two Grade B developments are also anticipated to come online (Parami Valley and Maha Nawarat Office Tower). Once all these meet their declared completion dates, Yangon will witness the highest annual addition (83,980 sq meters or 903,950 sq feet) seen in the last four years.

Meanwhile, in 2021, we see no projects coming online given the deferrals observed in most projects in the pipeline. This, in turn, has led Colliers to revisit the supply figures for 2021 and onwards. Previously scheduled in H2 2021, developments such as HAGL Tower 3 by Hoang Anh Gia Lai Myanmar Co., Ltd. was moved to H2 2022.

Despite such, Colliers believes that the number of future planned projects will continually move on an upward trend. Though, most of these potential new projects are still practicing probing approaches as investors and developers await further clarity in the market as well as the upcoming government election that is set to happen in 2020. Nonetheless, some remain optimistic. They believe that the property industry will likely grow in line with the country’s economic projections, which is expected to improve in the long term. In fact, Colliers still see the desire of few developers to build portfolios in the country. This is particularly true for big, overseas developers (mainly in Asia) that are considering the country, specifically Yangon, as a viable location for their developments.

DIPS IN BOTH OCCUPANCY AND RENTAL LEVELS The average occupancy rate stood at 65.6%. Given the considerable stock delivered during the quarter, the number is down by 5.6% and 6.7% on a quarter and annual bases, respectively. While this is a considerable decline, respective occupancy level in almost all projects were relatively stable. In fact, a number of Grade B projects such as The Regency Office by Ever Best Hotel & Resorts Co., Ltd. and International Commercial Centre by NEXLAND Co., Ltd. was able to witness increases between 7% and 9%. As Colliers sees it, the occupancy will likely head for a temporal recovery in the next three to six months at an estimated 2-4% following the projected limited entry of new projects for such period. However, a dip will most likely occur towards the latter part of 2020 once sizeable projects such as Harbour Trade Tower, M Tower, and Y Complex concludes, coupled with the commencing of the national elections. Although occupancy is projected to decline by end-2020, the number of office space enquiries is expected to increase, however at modest levels. We anticipate some potential transactions to come on stream from select industries, including banking, insurance, consumer goods, and start-up companies.
Meanwhile, the current tenant market condition that has led to the escalating competition amongst landlords has further pushed them to adopt a lower rental rate for their tenants. This, in turn, drove the citywide rental rate further dowward, closing Q4 2019 at USD36.7 – a decrease of 3.5% qoq and 11% yoy.
Majority of the documented declines were observed in Grade B (e.g. Aurora Office Tower, Pyay Garden Office, Maha Land, etc.) and Grade C (e.g. SOHO Diamond, Mimosa, etc.) offices located in the Inner City Area. Few landlords of Outer City developments similarly tugged their rental price points. In fact, the largest decline for this quarter was recorded in this area, at nearly 30% qoq. In the medium term, the entry of better quality developments could well exert upward pressure on overall rents. Landlords of developments with high occupancy rates are more hesitant about making price reductions considering tenants are still locked in their old contract terms. However, this is seen to change should better and more space options become available. Higher rates set by upcoming better-quality developments is probable and could likely skew rents upward should demand continue to grow.

The projected increase in asking rent does not entirely reflect market improvement. The expectation of higher rental figure in the remainder of 2020 will be largely contributed by the operation of future grade A and Premium office buildings. We estimate average asking rent by the end of 2020 will increase by around 3-4% YOY.

Source : Colliers

 

 

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