Colliers Property Report – Yangon serviced apartment supply Q3 2020

Summary & Recommendations

As of Q3 2020, Yangon’s serviced apartment market witnessed a decline in demand albeit modestly compared to the level a year ago.The overall performance,in fact,appeared more resilient than expected especially in comparison to their hotel counterparts.Moving froward,Colliers sees serviced apartment likely to fare better given its self-contained environment and more personalized offerings and features.

Requirements, however, for new market entrants will remain subdued in the near term, with operators only likely            to tap on existing and domestic channels.Consequently, effective renegotiation of existing leases along with new competitive rates should overall help buoy demand. Given the limited stock of mid-tier serviced apartments, along with resilient occupancy levels recorded in the past quarters, investors are likely to see this as bankable asset not least in an emerging market such as Myanmar.

Besides flexible payment terms and equipping work-from-home designs and setups, Colliers also encourages
operators to continually adopt a culture of personalized service while keeping hygiene standards at a high level.

Serviced apartments in Yangon has come under strain from the pandemic outbreak, also following the repatriation of many expatriates since Q2 2020. Based on government statistics, the total number of foreigners residing in Yangon has declined gradually since 2014 to end at 17,000 in 2019. With continuing relief flights, further decline in expatriates seems inevitable. However, this downward trend is temporary amid a market that continues to show signs of resiliency.

As of Q3 2020, the average occupancy rate declined year on year albeit at a modest level. It also remained at the sub-80% range over the past four quarters, performing better than originally expected. While foreign arrivals remain momentarily halted, Colliers expects demand to be feeble only in the near term.Developers and operators are then advised to continually strengthen ties with tenants. Effectively renegotiating lease terms could also help buoy overall demand. This may include changing rental dues to periodic schedules such as monthly or quarterly, as well as reasonably adjusting services such as lowering frequencies of housekeeping and inventories – at least temporarily.

With some expatriates unlikely to bring their households back to Yangon, options for room downgrade may also help in managing costs both for landlords and tenants alike. Despite these, we expect operators to continually hone a culture of personalised service as a core business function, to help retain existing guests and eventually entice new tenants as the market gradually recovers.

Meanwhile, no new serviced residence has come online in Yangon over the past four quarters amid waning construction activity.As at the end of Q3 2020,Colliers recorded a total of 20 serviced residences operating more than 2,300 rooms. While developments appear currently muted,the aggregate supply,however, is expected to reach a new record high in the medium term.Should construction activity picks up the pace again, a large upturn of more than 1,600 units of supply is anticipated within the next three years with Inno City by Inno International Development,The Goneyi Towers by Sae Paing Development,Somerset by United GP Co., Ltd.,The Garden by Kajima Corporation and The Golden Terrace by NSKRE Residence (Myanmar) Co., Ltd. forming majority of the pipeline.

Yet,there remains a limited supply of mid-tier serviced apartments.Considered one of the top performing sectors pre-COVID and given current market resiliency, investment opportunities remain high for this segment in the long haul.At present, overall rental rates have corrected further downwards in a bid for operators to retain accounts, and perhaps generate new demand. The drop in headline rental levels was most significant in studio and one-bedroom units with average monthly rates settling at USD1,390 and USD2,770.

Given downward pressures on revenues, developers are advised to adopt lean but efficient operating strategies when possible. Colliers recommends to review operating and overhead costs as well as implement cost control measures by identifying and reducing primary cost centers. On a commercial front, future-proofing developments are fundamental. This may include redesigning and enhancing safety features and standards, improving space productivity to allow work-from-home setups, digitalizing services to improve overall guest experience, and upgrading hygiene and cleanliness protocols among others.

Source : Colliers

For more information , please contact :

Hpone Myint Thu
Manager | Research | Myanmar
+95 (0) 9 425 006 777
hponemyint.thu@colliers.com

 

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