UN Forced Out of Billionaire Kuok’s Yangon Hotel: Southeast Asia

Myanmar information search service

The United Nations is being forced out of billionaire Robert Kuok’s Traders Hotel in Yangon next month amid a tourism boom in Myanmar after housing various offices in five floors of the property since 2007.

The UN signed its last lease for the hotel owned by Kuok’s Shangri-La Asia Ltd. (69) in August 2012 for a final year, said Aye Win, a Yangon-based spokesman for the agency. A 10th of its 2,000 employees in the country are still in the hotel, he said.

“Prices for hotel rooms are skyrocketing in Yangon as limited supply cannot match the soaring demand,” Aye Win said in an e-mailed response. “Increasing demand from tourism and investment makes it more profitable for the hotel to get back to its initial purpose.”

As Myanmar President Thein Sein allows more political freedom and loosens economic controls since coming to power two years ago, nations including the U.S. have eased sanctions. With tourists and business travelers flocking to Yangon, the country’s commercial capital, hotels are close to full occupancy, compared with an estimated 30 percent two years ago, according to Scipio Services Co., a real estate advisory company in the city.

The UN said it has been in Myanmar, one of Asia’s poorest countries, since its independence 65 years ago. The nation has undergone half a century of military rule, where opposition leader Aung San Suu Kyi spent 15 years under house arrest.
Moved Out

The International Labour Organization, a UN group that occupied part of the space in the Traders, has already moved out, Aye Win said.

A night at the 305-room hotel today starts at $235, according to Shangri-La’s website. That’s almost twice the HK$950 ($122) rate for the Traders in Hong Kong and higher than the Singapore location’s price of S$250 ($197), according to the website.

“Given the continued exceptional growth in visitor arrivals, construction lag and potential economic, legal and political risks, Yangon will likely continue to experience a major shortage of hotel rooms for the next five years,” said Andrew Langdon, executive vice president for Thailand and Indochina at Jones Lang LaSalle Inc.’s hotels and hospitality group.

Rising demand meant room prices jumped more than fourfold last year from 2007 levels, Langdon said. He estimated that the average daily rate for the 208 registered hotels in Yangon comprising 9,110 rooms to rise 15 percent to $160 this year.

Global Players

The room shortage is drawing more global operators. Marriott International Inc. (MAR), the largest publicly traded U.S. hotel chain, expects to seal its first agreement for a property in Myanmar in the next six months, while Best Western International Inc. will open its first property in the country this year.

Only eight hotels with a total of 1,571 rooms in Yangon are considered to be of international standard, Langdon said.

The country hosted the three-day World Economic Forum on East Asia last month, drawing heads of state and executives of companies including General Electric Co. and Coca-Cola Co. (KO)

Tourist arrivals rose 30 percent to 1.06 million last year, according to government data. The country is planning 38 tourism projects valued at $500 million, the government said in a statement last month with the Asian Development Bank and Norway. International visitor arrivals are forecast to increase sevenfold to as many as 7.5 million in 2020, with tourism spending reaching $10.1 billion, it said.

Home Offices

Some companies, such as Unilever NV (UNA), the world’s second-largest consumer goods company, have taken houses fitted out as offices in Yangon. Rents for villas are approximately $2 per square foot per month, and may rise as international companies move in, according to a report published yesterday by Scipio. Monthly rents for two-to four-bedroom houses, which charge $4,500 to $6,500 now, will rise 44 percent to 46 percent in the second half, said Brett Miller, managing director of the company.

Kuok is Southeast Asia’s richest man with a net worth of $15.8 billion, according to Bloomberg Billionaires Index.

The few commercial office buildings available in the downtown area of the city were almost fully occupied in the last two years, and monthly rents rose to about $8.40 a square foot in May from $4.60 in mid-2011, according to the Scipio report.

For the UN, the cost of new rental space ranges from $1.50 to $5 a square foot a month based on the proposals received, Aye Win said. The UN’s rent at the Traders rose 20 percent when it renewed its lease in August last year, which is still “far below” rates at comparable prime locations, he said.

“The real estate market in Yangon is booming and UN agencies in commercial rental arrangement have to face increases in rent,” he said.

Source: Bloomberg

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