Bangkok prime retail rents slip as downward pressure persists
Prime gross rents declined by almost 3% in Q2.
Bangkok’s prime retail rents are still on a downward trend as the pandemic drags on. According to JLL, prime grade gross rents decreased by -2.6% q-o-q, while net effective rents declined by -3.1% q-o-q in 2Q21. The analyst blames COVID-19 impacts as the culprit for these rental drops. Mall operators resort to offering discounts and other incentives to keep the tenants and prevent high vacancy, which would be unappealing to shoppers.
JLL adds that capital values rose by 0.6% q-o-q in 2Q21 as operators continued to make investments in technology, materials, and human resources required to conform to government-mandated COVID-19-related hygiene practices. As a result of falling rents and rising capital values, yields compressed marginally.
Here’s more from JLL:
COVID-19 impacts and ongoing renovations drive negative activity
Prime grade net absorption totalled roughly -16,000 sqm in 2Q21. Negative net absorption was mainly driven by ongoing renovations in some centres, such as Siam Paragon, CentralPlaza Rama II and Central Chidlom, while a new wave of COVID-19 beginning in April was an another driver that has put significant pressure on many tenants, particularly those in the F&B space.
With limited foot traffic in the past few quarters and international travel restrictions still in place, new leasing activity in 2Q21 was subdued and mostly driven by brands with existing footprints. F&B brands still inked a number of new deals in the quarter with notable 2Q21 openings including Eric Kayser, Ya Kun Kaya Toast, TP Tea by Chun Shui Tang, and Sushiro.
No new supply completes in 2Q21
Prime grade stock remained unchanged at 3.5 million sqm with no new supply completing. Centre-wide renovations at The Mall Thaphra are expected to finish in 3Q21, bringing 88,000 sqm NLA back to the market.
Market-wide prime vacancy rose to 4.5% as record-low consumer confidence influenced by Thailand’s lacklustre vaccine rollout campaigns amidst the latest wave of COVID-19 has caused foot traffic to plummet. Notably, e-commerce sales continued to grow steadily, putting additional pressure on brick-and-mortar retailers.
Outlook: COVID-19-driven uncertainty continues to impact retail
The slow vaccine rollout and the new wave of COVID-19 transmission, together with the lack of direct support for retailers from the Thai government, will likely continue to negatively impact retail activities. Therefore, we do not expect rental values to reach pre-COVID-19 levels until the end of 2023, at the earliest.
New supply over the next 12-months will come from the aforementioned The Mall Thapra renovation (88,000 sqm) as well as expansions of CentralPlaza Rama II and Siam Premium Outlets, and the completion of The Mall Ramkhamhaeng 2, which will collectively add 123,000 sqm to stock by the end-2021.
Note: Bangkok Retail refers to Bangkok's prime retail market.