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News Release

Bangkok

Rosy outlook for the Bangkok retail market

Strong demand from international brands for prime retail space


As purchasing power slows in mature markets like the USA and the Eurozone, international luxury and high street brands are seeking expansion opportunities in dynamic, rapidly growing Asian markets. Bangkok is fast becoming the destination of choice for a number of these brands and for international tourists from large, high-expenditure source markets alike. With growing domestic demand, rising tourist numbers and strong leasing demand, especially from international retailers, outlook for the Bangkok retail market remains rosy, according to Jones Lang LaSalle, a professional services firm specialsing in real estate.

Growing domestic purchasing power, rising tourist numbers and competitive rents lure retailer demand for space in prime retail centers
Growing domestic demand and rising tourist numbers have resulted in strong leasing demand for prime grade retail space in Bangkok from both existing retailers wishing to expand and newcomers. Many high-profile international brands, including Giorgio Armani, Valentino, Miu Miu, Sephora and Victoria’s Secret Beauty & Accessories, have entered the Bangkok market recently, or plan to do so by year-end.

More international retail brands entering into the Bangkok retail market are attracted by not only high exposure to both domestic and foreign consumers, but also relatively low rents compared to more established retail markets in the region.

Rents for prime retail space in Bangkok as of the second quarter of 2013 were roughly THB 2,274 per square meter per month, much lower than the THB 10,201 per square meter per month offered in Singapore and the THB 13,391 per square meter per month in Hong Kong.

At the same time, international tourist arrivals and per capita expenditures are reaching new heights. Year-to-date international tourist arrivals to Thailand as of August 2013 reached 17.4 million, up 21.4% y-o-y. Visitors from East Asia account for both the largest (60.3%) and fastest growing (31.7% y-o-y) segment. The average daily expenditure of international arrivals is gradually increasing (THB 4,393 per day per person in 2012 versus THB 4,187 per day per person in 2011), and about a quarter of expenditures are dedicated to shopping alone.

The market is not without challenges
Despite these opportunities, the market is not without challenges, among which are the market conditions and existing taxation regimes.

Currently, the total stock of supply in the Bangkok retail market is standing at 8.9 million square meters. Of this, 4.6 million square meters are defined as prime retail space. As only less than 6% of this prime retail space remains vacant, some existing and new retail brands may face difficulties with acquiring well located space in prime retail centers.

Whilst new prime retail space of 136,300 sqm is in the pipeline and scheduled to complete by end-2013, demand from most retail brands are concentrated in two new high-profile projects; Central Embassy and Emquartier. Both projects are being developed by Thailand’s leading retail developers, Central Group and The Mall Group and are expected to come online by 2014.

However, space in future prime grade projects have already witnessed healthy pre-commitment levels. Central Embassy with 70,000 square meters of gross floor area has achieved a pre-commitment rate of 90% and will include stores by Chanel, Gucci, Prada, Hermes, Miu Miu, Saint Laurent, Mulberry, Balenciaga, Ralph Laurent, Vivienne Westwood, Giuseppe Zanotti, Roberto Cavalli and Paul Smith. Emquartier, another prime retail development project with 200,000 square meters of gross floor area, which is scheduled for completion in 2014, has reported a pre-commitment rate of 100%, although a tenant list has not yet been disclosed.

With strong pre-commitment levels, the average vacancy rate in the Bangkok prime retail market is like to stay stable despite new supply.

The current taxation structure in Thailand is another factor that makes retail operations challenging, making for a tough sell to domestic consumers, let alone international visitors. For example, it is common for Thai consumers to seek out luxury goods locally from grey market retailers or to make purchases while abroad.

In an effort to stimulate both lagging domestic consumption and burgeoning tourism expenditures in the retail sector, the Thai government is considering a proposal that would reduce taxes on luxury goods in order to better compete with regional luxury retail destinations like Hong Kong and Singapore.

The proposed tax reductions will initially cover imported luxury goods such as cosmetics, perfumes and watches, which are typically subject to tax rates in excess of 30%. While the specific extent of the tax reductions in scope or scale has not yet been fully revealed, news reports suggest that the scheme could be in place by year-end. That said, the efficacy of this initiative is in question, with some experts expressing doubts over whether or not such tax reductions will increase arrivals and expenditures to an extent that outweighs the possible negative impacts on domestic brand competitors.

Prospects looking good, however

Despite those challenges, positive outlook for retail business should remain throughout 2013-2014. More international brands are expected to enter the Bangkok retail market while existing brands will continue to expand their market presence to take advantage of the growing purchasing power of both domestic and foreign consumers. In line with strong leasing demand, vacancy rates of retail space are expected to remain stable across Bangkok, particularly in prime retail centres. Rents will continue to rise gradually but will remain competitive, compared to other major retail markets in the region.