Bangkok RetailAsian Cities Report – 1H 2020

REPORT

Savills Research

savills.co.th/research

Bangkok Retail

Recovery underway though dependent on the return of tourism

ECONOMIC OVERVIEWThailand’s economy has been suff ering under the hardships resulting from COVID-19 and the countrywide lockdown that came into eff ect mid-March. Tourism arrivals in March were down 76.4% from the previous year, whilst exports also saw a contraction of 2.2%, the eff ects of this were sweeping layoff s and leave without pay, which has hit hospitality particularly hard, and may result in up to 6 million people becoming unemployed. Thailand’s government has approved a stimulus budget of USD59 billion in total to help relieve the stress on individuals and businesses, measures include tax reliefs, soft loans and an unemployment budget.

From March 22nd, as a measure of social distancing, all shopping centres and retail outlets were closed; through this period landlords were giving rental discounts and accepting delayed payments in order to share the burden with the closed retail. A partial reopening was permitted from May 17th, allowing stores and restaurants to reopen though they must follow the government’s hygiene requirements. The reopening appeared to have been successful with large numbers of local customers observed in most of Bangkok’s major outlets.

SUPPLYBangkok’s total retail stock stands at 8.8 million sq m, while 3.1 million of that total is considered to be prime retail. There has been no signifi cant additional new supply in 1H/2020, and the most notable market news has been that Isetan, the Japanese department store, is leaving the Bangkok market after 28 years since it fi rst opened in Central World. The decision was made at the end of their lease term due to the intense competition they have faced from local retailers. This means that over 27,000 sq m of leaseable area will return to the landlord, Central Pattana, who have stated that the space will be renovated to become an “urban lifestyle destination” which is expected to complete by Q3/2021. We can observe that Japanese supermarket Donki Mall is stepping in to fi ll the void, and they have recently opened a new 4,000 sq m premises within The Market Bangkok shopping mall on Ratchaprasong Road. The Market Bangkok has been struggling with low occupancy of approximately 80 % since it opened in Q1/2019.

The prolonged period of economic hardship that is anticipated to follow the global pandemic will likely result in developers reconsidering the development schedules for their retail projects. Bangkok has a large pipeline of new retail space, totaling 1.2 million sq m, which will enter the market in the next fi ve years, and may be delayed as developers try to assess the timing of the return of a positive market.

OCCUPANCY AND RENTSAfter remaining stable through 2019, Q1/2020 saw average prime retail rental rates drop dramatically to THB1,854, representing a deduction of -13% YoY, due to the rental relief provided by some landlords and their increased promotions to try and secure new tenants. Some retailers will be hoping that this lower rate may be the start of a much more fl exible approach from landlords who may become increasingly concerned

GRAPH 1: Total Bangkok Leasable Area Confi guration By Retail Type

Shopping Mall, 62%

Community Mall, 15%

Hypermarket, 10%

Specialty Store, 5%

Department Store, 4%

On Site Retail, 3%

Entertainment Complex, 1%

Source Savills Thailand Research

GRAPH 2: Bangkok Prime Retail Average Rents And Occupancy, Q1/2017 to Q1/2020

0

500

1,000

1,500

2,000

2,500

90%

91%

92%

93%

94%

95%

96%

97%

98%

99%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2017 2018 2019 2020

TH

B/S

Q M

/MO

NT

HOC

CU

PAN

CY

RA

TE

Occupancy (LHS) Rents (RHS)

Source Savills Thailand Research

GRAPH 3: Bangkok Annual Retail Building Construction Permits, 2015 to 2019

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2015 2016 2017 2018 2019

SQ

M

Source Government Housing Bank, Real Estate Information Center

TABLE 1: Number of International Tourist Arrivals and Receipts, January - February 2019/2020

Source Ministry of Tourism and Sports

COUNTRY OF

NATIONALITIES

NUMBER %

CHANGE

2020/19

RECEIPTS (THB MIL) %

CHANGE

2020/192020P 2019P 2020P 2019P

East Asia 3,357,419 4,670,377 -28.11 129,958.91 200,063.13 -35.04

Europe 1,723,479 1,720,256 0.19 116,637.67 122,344.45 -4.66

The Americas 276,874 316,130 -12.42 17,979.88 22,199.60 -19.01

South Asia 299,908 349,441 -14.17 12,192.77 15,126.83 -19.4

Oceania 118,056 138,252 -14.61 8,415.86 10,796.14 -22.05

Middle East 75,813 103,026 -26.41 5,895.09 8,319.39 -29.14

Africa 20,596 24,676 -16.53 1,422.05 1,837.98 -22.63

Grand Total 5,872,145 7,322,158 -19.8 292,502.23 380,687.52 -23.16

Bangkok Retail

with the long-term security of their tenants in the face of a prolonged period of economic uncertainty.

The average prime retail occupancy was 98% in Q1/2020 representing the fi rst period since Q3/2018 where occupancy hasn’t increased. We anticipate that occupancy rates will decline further following the lifting of the lockdown, as retailers begin to measure their long-term viability in a subdued market. The few vacancies that occurred in Q1 were mainly household and furniture stores, who were likely struggling prior to the global pandemic.

LATEST TRENDSUpon reopening shopping malls have made a considerable eff ort to demonstrate their high levels of hygiene and protections against COVID-19 for both shoppers and retailers; it’s likely that this eff ort will continue for a considerable amount of time and may well lead to a long term behavioural shift within the retail industry.

E-commerce saw online purchases grow by 80% in February, which was mainly driven by groceries and essential products as households looked to stock-up ahead of the lockdown. Lazada Thailand also reported a 100% rise in sale transactions from mid-March to mid-April, demonstrating that E-commerce will fi nd considerable traction during the pandemic. It’s likely that E-commerce will continue to be a key concern for retailers and landlords alike. However, judging from the apparent success of the shopping mall re-openings in May it looks likely that retail will remain a key form of leisure for Thais.

Once the world’s economies have recovered, Bangkok’s fundamentals remain promising for retailers, especially once tourist arrivals return

to 2019 levels.

GRAPH 4: Retail and Commercial Loan Unit and Value Given, Q1/2018 to Q4/2019

Source Government Housing Bank, Real Estate Information Center

0

15,000

30,000

45,000

60,000

75,000

90,000

105,000

740

750

760

770

780

790

800

810

820

830

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2018 2019

VA

LUE

(TH

B)

LOA

N U

NIT

GIV

EN

Loan unit given (LHS) Value (RHS)

MARKET OUTLOOKThe current pandemic will be one of the most challenging periods faced by retailers in recent memory, and it will likely change how retailers operate and how consumers behave for a considerable amount of time. Landlords must work hard to adjust their operations to meet the new hygiene and social distancing standards in order to regain consumer confi dence and restore foot traffi c as much as possible. Judging from the initial easing of lockdown restrictions for retailers, it seems likely that there will be some recovery within the market initially. Ultimately, it will likely take years for the retail market to fully recover, as such a large portion of revenue is generated from tourists, who are not anticipated to reach their pre-COVID arrival numbers for at least another two years. It is likely that we will see a drop in occupancy across the market, as retailers who may have been struggling prior to the global pandemic may reconsider their long-term prospects. We anticipate that the luxury segment will struggle for recovery, as a large portion of their revenue is derived from tourists, this may lead to some large international brands reconsidering their requirements, as part of a wider regional review.

It is likely that we will see some further downward movement of rental rates, as landlords seek to minimise risk of vacancies, and there may also be some more favourable lease terms or rent free periods on off er as landlords begin to compete for the few new openings which will likely occur.

The long-term outlook for Bangkok’s retail is dominated by the ability of the global economy to recover from the COVID-19 pandemic; local demand may recover but the market is reliant on tourism in order to realise the revenues it has enjoyed for the past fi ve years. There is some hope that the East Asia region, which accounts for 64% of Thailand’s arrivals, may recover from the pandemic ahead of other regions. This may enable regional tourism to restart sooner, which would provide a partial recovery for Bangkok’s retail market. Once the world’s economies have recovered, Bangkok’s fundamentals remain promising for retailers, especially once tourist arrivals return to 2019 levels.

TABLE 2: Future Prime Retail (Mixed-use) Development

Source Savills Thailand Research

PROJECTYEAR

OPEN

MIXED-USE

TYPE

RETAIL

AREA

(SQ M)

TOTAL

PROJECTS

AREA

(SQ M)

The Parq 2020 Offi ce, Retail 12,000 133,000

The Oasis 2021 Offi ce, Retail Approx. 5,000 53,000

Emsphere 2022 Offi ce, Retail 200,000 220,000

One City Centre 2022 Offi ce, Retail 5,000 61,000

Mochit Complex 2023 Offi ce, Retail Approx. 5,000 75,000

Dusit Central Park 2024

Offi ce, Retail, Hotel, Residential

80,000 250,000

One Bangkok 2025Offi ce,

Retail, Hotel, Residential

180,000 680,000

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