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Colliers Property Report – Yangon office stock Q2 2020

Summary & Recommendations

Yangon’s total leasable area increased by nearly 3% QOQ. As we have noted, most new supply due in H1 2020 was delivered as scheduled. Office construction will not likely witness delays by the end of this year, compared to other property segments of the city. As for leasing decisions, they were relatively undisrupted in the first two months of 2020, with resilient demand for larger premises and new offices associated with business diversification. However, since March 2020, the effect of the spread of COVID-19 gradually began to impact leasing activities.

This, coupled with the rise in stock, has resulted for occupancy rate to decline in Q2 2020. More than a few corporations suspended moving pronouncements; others deferred setting up new workplaces; and a number of deals were negated.Confronted with these scenarios, rents have and will continue to come under increased pressure in the coming months.

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As of Q2 2020, the overall leasable area reached just about 450,660 sq meters (4,850,864 sq feet), up by 2.9% QOQ and 16.4% YOY. The boost in supply was stirred
by the current completion of two new office buildings. The Leaf Office Tower is an 11- storey project built by IME Holdings Ltd. while Sin Phyu Taw Business Center is an eight-storey office built by Sin Phyu Taw Business Group, Ltd. Together, these offices brought an addition of 12,840 sq meters of leasable area. In H2 2020, upmarket projects such as Harbour Trade Tower, M Tower, and Maha Nawarat Office Tower are expected to come online. Given the shocks enthused by the virus, provisions to build office specs and hardware will need to be re-envisioned. Hence, we advise developers and landlords to provide buildings with sustainability and wellness features, particularly those related to indoor air quality, ventilation systems, and other indoor environmental features. Developers may similarly look at delivering offices with open space formats and layout. These should lure stronger demand in the long term.

Meanwhile, the citywide occupancy rate in Q2 2020 fell to 65.3%, down by 1.5% QOQ and 5.7% YOY. Apart from the increase in stock, the occupancy fell as several
companies have postponed relocation decisions; others delayed setting up new offices; and a handful of new leases were cancelled. While large space requirements
were limited, Q2 2020 nevertheless saw the conclusion of few deals that had been under negotiation for some time. In the last six months, demand was mainly driven by the financial services and insurance firms, with some activity from trading and technology sector. Going forward, demand is expected to weaken in H2 2020 as companies, especially multinationals, encounter delays in obtaining approvals from head offices. On the other hand, occupiers are advised to finalise leasing decisions before 2020 ends as incentive levels for new leases are expected to temporarily increase. Meanwhile, rents continue to see a downward pressure across the city (See Figure 2). Rent reductions have been the most direct concessions, while other arrangements include extended rent-free periods, rent holidays, and fit-out subsidies.As of Q2 2020, the average lease rate settled at USD 28.6 per square meter per month, a drop of 21% QOQ. Revision on rental growth forecasts is likely as leasing activities including pre-committed leases will lessen. At present, a number of tenants are now revisiting payment terms with landlords to offer more flexibility. However, no vivid trend has transpired yet. Hence, we advise landlords to start offering more flexible leasing contracts and payment arrangements. The average asking rental rate in the city by the end of 2020 is forecasted to decrease by up to 30-35% YOY. Once this surfaces, this will be the highest rental tariff reduction seen in the last couple of years.

Source : Colliers

For more information , please contact :

Paul Ryan Cuevas
Senior Analyst | Research
Myanmar
+95 0 9 960 381 584
paulryan.cuevas@colliers.com

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