Research &
Forecast Report
Yangon | Office Market
1H 2015
Supply pipeline continues to increase as demand dampens temporarily
Office supply is projected to double this year with over 140,000 sq m of new leasable space. The increase in stock will be driven by the HAGL Myanmar Centre Office Towers, slated to open in 2H 2015.
Demand weakened in 1H 2015 and is expected to be flat for the remainder of the year as companies remain in a holding pattern, awaiting elections results in November and the subsequent new administration.
Future office requirements shall remain healthy in the longer term as Myanmar continues to open up to foreign investment.
Yangon office supply stock to double over the next six months
As of the end of 2014, the total office supply in Yangon stood at 107,864 sq m of net leasable space. Over 140,000 sq m is expected to be added in 2015, 20% of which have already completed in the first half.
Several office developments targeted for completion in 2Q 2015 were pushed later as developers struggle to meet their deadlines. As a result, the office pipeline for the remainder of the year significantly rose, to double the total current office stock. The increase will be led by over 80,000 sq m of new office developments in the Inner City area.
The pipeline continues to build up, and the total office stock is projected to reach over 400,000 sq m from its current base of approximately 136,000 sq m of leasable space.
Some new projects completed in 1H 2015 included The Office @ Novotel Yangon Max, Union Financial Centre, Pyay Garden Office and The Strand Office Complex, collectively making up over 26,000 sq m. Some of the other notable developments expected for completion in the near to medium term are HAGL Myanmar Centre Office Towers, Vantage Office, Sule Square, and Myanma Awba Office Tower. Over the next three to four years, projects such as Pyay Tower Office, Junction City Office, Kantharyar Office Tower and Crystal Office Tower are due to be delivered, similarly reinforcing the increase in future supply.
Still a lack of international grade office space
While many higher-quality office options are currently being constructed, there remains an absence of proper international quality grade A buildings in Yangon. At present, there is only 59,000 sq m of top-tier office buildings in the city. Besides the newly completed better quality developments in 2Q 2015 along with the existing buildings (Sakura Tower, Union Business Centre, FMI Centre and Center Point Tower), eight new higher-grade projects are currently in the pipeline, representing approximately 236,500 sq m of office space. Given the development activity over the past and next several years, the completion of these new buildings will exert downward pressure on the current grade and classification of the existing ones.
Meanwhile, despite the anticipated rise in stock, the sector grew from a very low base, and will yield an average of 78,500 sq m of new space per year from 2015 to 2018, negligible in comparison to other major Southeast Asian cities. At present, Yangon trails Hanoi’s office stock, which is 12 times larger. Yangon office supply represents only 1.1% of Kuala Lumpur’s over nine million sq m of office space. Similarly, the supply of international quality grade A offices in the city is practically non-existent, with the number of higher quality office buildings remaining low.
Occupancy rates fell over the past six months due to new supply
The citywide average occupancy rate fell from 4Q 2014 to 2Q 2015 by 10.6% from 88.93% to 79.52%. This large decline was partially driven by the substantial stock introduced in 2Q 2015 coupled with its low occupancy rates.
On an annual basis, citywide occupancy is down by 9.9%, resulting in an occupied stock of approximately 108,000 sq m. One of the largest occupancy decreases within existing stock properties occurred in the downtown area. The demand in the Outer City zone remained the highest with an occupancy of approximately 94% as of 2Q 2015.
A flight to newer quality buildings should continue over the next several years as existing and future tenants are in search of proper office spaces coupled with the increasing availability in medium term.
In the longer term, office space requirements should remain relatively healthy, despite the anticipated rise in supply. As the country continues to open up, foreign direct investments and business requirements will significantly bolster demand.
Furthermore, a positive election outcome will significantly lead to a surge in new international companies entering Myanmar, likely choosing Yangon as a base of operations. These multinational companies will require international grade office spaces, several of which buildings will come online over the next few years highly likely fulfilling this future requirements. Moreover, the ASEAN integration will further strengthen the inflow of investments, fuelling businesses and driving office demand. However, both businesses and real estate developers remain in a holding pattern until the election takes place later this year.
Rents decrease as existing stock competes on rates
Note: Yangon’s historical office rental rates were revised and rebased as a result of a revamp in the sampling size conducted in 4Q 2014.
The citywide average office rental rate ended at USD 65.78 per sq m per month in 2Q 2015, a decrease from 4Q 2014’s USD 70.56. This translates to roughly USD 13,156 per square meter per month for a 200 sq m office unit. Rents decreased in all areas of the city over the past six months, with the downtown area rents declining the most.
Year on year, rents in the downtown and outer city areas fell, while rents in the inner city area rose. The largest annual rental decline was seen in the outer city area followed by downtown. In the inner city area, average rents increased by 5.88% YoY, showing the only gain over this one year time period, but still dropped HoH.
The forecast direction for the citywide average rent is to be flat for the remainder of 2015, given the competition that will continue to be seen as new office supply enters the market over the next several years.
For more information please contact:
Karlo Pobre
Research Manager
Research & Advisory
+95 (0) 931 336 099
karlo.pobre@colliers.com
Adrian Soe Myint
Analyst Research & Advisory
+95 (9) 976 895 535
Tony Picon
Managing Director | Myanmar
+95 (0) 942 103 4026
antony.picon@colliers.com
Colliers International
Myanmar
Unit 7/C (6th Floor)
White Cloud Building,
No. (138/142) Thein Phyu
Road, Botahtaung Township
Yangon Myanmar
TEL +95 (0) 931 491 678
Source: Colliers International Myanmar
