Large deals continue in Bangkok office market
Two of the ten largest transactions in the history of the
Bangkok office market, including the largest ever, have been completed in the
past three months, despite the fact that the Asian office markets entered a
downward cycle in the fourth quarter, according to CBRE Research.
Throughout Asia, ongoing global financial turmoil continued to erode investment
and business confidence, causing prime office leasing activity to slow
dramatically. A broad-based reduction in office rentals has been seen as
landlords have made tenant retention a top priority. Many tenants are now
focusing on cost-saving measures, especially in view of continued difficult
economic conditions.
However, in Thailand, the picture was different. DTAC signed the country’s
largest ever lease during Q4 2008, in a deal for 61,500m2 in Chamchuri Square, a
new grade A office development on Rama IV. Chamchuri Square is the largest new
office building completed since the 1997 crisis, and over 80% of the building
has been committed already.
Q1 2009 saw Citibank sign a lease for more than 20,000m2 of space in Interchange
21, a Grade A development on Asoke, just across from Exchange Tower. This new
development has also seen over 80% of its space already committed despite
opening just a few months ago.
“With a limited amount of new Grade A supply on the horizon, including Asia
Centre this year and Sathorn Square next year, we expect the top end of the
office market to be one of the first sectors to rebound,” states Nithipat
Tongpun, Director & Head of Office Services at CB Richard Ellis Thailand. “Prime
rental rates in Thailand have not fallen, unlike Singapore and Hong Kong.”
The office vacancy rate rose at a rapid pace across Asia during the fourth
quarter with a rise recorded in 14 of the 17 markets tracked by CB Richard
Ellis. Overall vacancy across the region rose by 4% bps between January and
December 2008, but the lack of supply in many Asian commercial centres ensured
that 12 markets recorded a vacancy rate of below 7% at of the end of 2008.
The contraction of the finance and banking sectors exacerbated the downward
pressure on rents with Tokyo suffering a fourth consecutive quarterly fall,
albeit at a slightly slower rate of 1%. Office rentals in Hong Kong and
Singapore recorded their biggest quarterly slump since 2000, falling 21.1% and
19.9% respectively.
CB Richard Ellis does not see much reason for companies in Thailand to move to
decentralized areas to save money on office rent because there is not much
difference in rent between similar quality buildings in the CBD and
decentralized areas. Additionally, there are also high capital costs to
relocate, including the cost of moving, fit-out, restoring premises to their
previous condition and other associated expenses, which mean that savings of THB
100-200/ m2 are not very worthwhile, unless there is a significant reduction in
the amount of space leased. (Source: CBRE Research)
Where should I invest my money?
With stock markets plummeting around the globe due to the uncertainty of the
global economy, and with some banks being allowed to fail, the question on
everybody’s lips is: Where should I invest my money; under the mattress?
Laughable as that may seem, sales of safes have skyrocketed while, according to
The Daily Mail (UK), even some furniture manufacturers have developed
beds with in-built safes. But is this really a viable or realistic option for
your money?
To stimulate consumer spending, the world’s central banks have been forced by
governments to introduce unprecedented cuts in interest rates. The pound, for
example, is now at its lowest rate since the Bank of England was established in
1694.
The result of this is that commercial banks, although not lending money easily -
and with 100% mortgages withdrawn in many countries - have cut interest rates
dramatically, which has in turn stimulated the incentive for investment in
property where it’s assumed they have reached the end of the downturn.
Investors are hardly getting any interest at all from their bank deposits, and
with dividend payments either being cut or suspended due to the slowdown in
profits, selective investment in real estate is a great alternative at the
moment - it may actually be the safest of all options, if one discounts the fact
that markets in the West remain unsure that property prices have bottomed out
yet.
Under normal economic conditions, a zero rate of interest would guarantee that
property prices would be high, with the ability to borrow money at almost no
cost and, at the same time, enjoy a yield above bank rates, which would have led
to insatiable demand for real estate.
However, we are not living under “normal conditions”; we are living in
extraordinary times, and the factors that have diluted these very “favourable
conditions” are the drying up of credit and falling property prices in the West.
Christopher Heath, director of Soho Properties, in Bangkok, commented: “We are
now seeing international investors taking a good look at what deals are
available in the Thai property market, as property yields abroad and from other
financial instruments are far more difficult, particularly in Europe, the US,
Hong Kong, Singapore and Australia.
“The only real drawback here is that the Thai baht is quite high, although many
analysts predict that its rate, supported by the Central Bank to keep exports
buoyant, must surely retreat, and soon.
“For cash-rich buyers, this is a golden opportunity to pick up some real
bargains, particularly from developers who have been affected by the credit
crunch.
“Another option is to go for deals where developers are guaranteeing rental
yields. This option works out really well for investors who can access a lower
funding rate than the guaranteed rental yield.”
It should be noted, however, that the assumption that banks are just not lending
is misplaced; loans to financial corporations at the tail-end of last year rose
nearly 43%.
Governments have put trillions of dollars into the banks and their economies in
general in the form of stimulus packages, but the banks are wary of loans to
businesses and individuals at present, which will have to be addressed in the
very short term if the money from the bailouts is not to be entirely squandered.
Paul Davies of Bangkok Property Condos & Homes Ltd. says: “The devaluation of
properties in Thailand is far less than many other countries and the bounce-back
from the global recession should be quicker in Thailand and Asia in general,
therefore taking advantage of a re-sale in the future.
“There is also the fact that many people may take earlier retirement or
redundancy packages due to the global slowdown and follow the many expats
already here into the sun and enjoy the lower cost of living.”
In Thailand, because of the Asian economic crisis of 1997, banks have not been
permitted to invest in derivatives or risky loans, so the excesses and lack of
liquidity of the Western banks do not apply.
Indeed, property prices in Thailand are not falling anywhere near as fast as
they are elsewhere; in fact, there has actually been a very small downturn in
the Bangkok property market.
In a related development and, to an extent, a boost in confidence for the Thai
property sector, Accor, a European leader and one of the world’s largest groups
in hotels and services, is putting its bets on Thailand’s tourism over the next
few years, lining up four more hotel projects with Fico Group.
“Thailand will be able to recover quicker than other countries,” Michael
Issenberg, chairman and chief operating officer for Accor Asia Pacific, said. “I
believe in the long-term potential of Thai tourism and will continue to expand
in Thailand in the next few years.”
What this amounts to is that as the Thai tourist industry starts to recover from
the global fallout, investors in the Thai economy - more specifically, in its
underlying property assets - will be well placed for high yields and large
capital gains when the economies of the world eventually recover.
The Thai economy, whilst certainly sluggish, has not been as dramatically
affected by the global slowdown as elsewhere due to its large current account
reserves, and its property market has taken advantage of historically low
interest rates.
Uncertainty is abundant at the moment, but it would be a very wise idea to take
some time in assessing the possibilities of investing in the Thai property
market, as property yields are a far surer answer than stuffing your money under
the mattress and hoping for the best. (Source PRLog/Soho Properties)
A-list stars ‘crunched’ in Dubai
Even those with A-list bank balances can’t avoid the economic turmoil – Brad
Pitt, Michael Jackson and the Beckhams have all fallen victim to the dreaded
crunch as the value of their luxury properties in Dubai plummet to Z-list
status.
Once the superstar of the United Arab Emirates; oil rich Dubai has witnessed
extraordinary price growth over the last few years as eager investors pumped
millions into the Dubai property market, eager to cash in on the boom.
Hollywood heavyweights were also keen to have a finger in the Dubai pie and
celebrities galore flocked to the man-made emirate, with some even going so far
as to endorse new Dubai developments – Boris Becker and Hillary Swank, you know
who you are.
Valued at $160 million, the Boris Becker Tower is built on one of the most
prestigious addresses in Dubai, in the centre of the business district and
features 19-storeys of class- A commercial space with freehold titles.
Miss Swank chose to endorse the $440 million Aquitainia development in the
middle of offshore development ‘The World,’ one of Dubai’s most ambitious and
costly projects.
The King and Queen of Hollywood, Brad and Angelina, reportedly bought a whole
island in Dubai – snapping up a slice of The World.
But fast forward a year or so and here we are, slap bang in the middle of the
worst economic situation since, some say, the Great Depression.
Dubai has fallen foul of the global recession and has been hit by a massive
housing market crash which has cost investors, including celebs, billions of
pounds.
Properties worth 5 million dollars in October last year are now on the market
for just half that amount.
According to Ronald Hinchey, Resident Partner at Cluttons Dubai, dire times lie
ahead for Dubai.
“The property market in Dubai is staring into a black hole and any hope of a
recovery in 2009 is just wishful thinking.
“Company sales were at two or less a month, compared to about 15 during the peak
months of July and August last year and mortgage valuations, which peaked at
about 250 a month for around 17 mortgage providers, were down to 50 per month,”
added Hinchey. (Source - PRLog/themovechannel.com)
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