Colliers Property Report – Yangon Office Market Quarterly Report Q4 2018

Insurance industry to buoy office market

Summary & Recommendations

As at the end of 2018, the citywide occupancy breached the 70% mark. Though this is healthy, Colliers has noted the sluggish pace of absorption during H2 2018. While demand appears currently held back given the recent market situation, Colliers remains optimistic that office space requirements will continually increase in the next three years with potentially better macroeconomic prospects. With the recent opening of the insurance sector, Colliers expects that this reform will further facilitate demand for quality office space going forward. While this bodes well for the office market, we continually advise developers to introduce international standard projects at reasonable rental rates.


Office space requirements are set to increase in the next three years especially now that the insurance sector is liberalised. The government liberalising more key investment sectors should facilitate growth going forward.


Total office supply reached more than 387,900 sq m (4.2 million sq ft) of leasable space. In 2019, Colliers anticipates the Inner City Zone to represent nearly 80% of the total stock.


The average occupancy rate increased by 3% qoq to end Q4 2018 at 72%. Though, occupancy level is likely to meagerly head downwards in H1 2019 given the entry of sizeable new stock.


We expect rents to correct further downwards, especially in older developments. This movement is seen to persist in the next two years with many untapped companies still seeking more reasonable rents.

Robust inner city pipeline projected in 2019

At the end of 2018, Yangon’s aggregate office supply reached more than 387,900 sq meters (4.2 million sq feet) of leasable space. The witnessed 2% qoq and 9% yoy stock increases were prompted by the debut of KBZ Tower (formerly called Red Hill Tower) in Sanchaung Township. Since the completion of Kantharyar Office Tower by Asia Myanmar Consortium Development Co., Ltd. in Q2 2018, Naing Group’s project was the only office building introduced during H2 2018. Still owing to Yangon’s languid construction activity, the office pipeline for the remainder of 2018 has noticeably weakened. Nevertheless, given that the pipeline continues to increase, Colliers estimates that Yangon will witness further progress in commercial building development, leading aggregate supply to escalate at an annual growth of 2% in the next three years.

Despite the delays, our forecast has remained the same from the previous quarter – a projection of eight developments up for completion between 2019 and 2021. Amongst these include Mindama Office Center by China Company Ltd., Time City Office Tower by Crown Advanced Construction Co., Ltd., M Tower (formerly called AMC Tower) by Mottama Development Co., Ltd., HAGL Tower 3 and 4 by Hoang Anh Gia Lai Myanmar Co. Ltd., etc.

Overall, these upcoming projects translate to more than 225,700 sq meters (2.4 million sq feet) of additional leasable space. However, limited construction activity for some of these projects may push back completion timelines and require revisions to supply forecasts in the succeeding years.

Source: Colliers International

Looking closely, while office developments continue to build up in both the Outer and Inner City Zones, we expect Downtown to have limited supply in the next two to three years. However, we anticipate sizeable stock in the future from the mixed-use development Yoma Central as well as the planned redevelopment of the 60-acre railway plot. This should continuously support Downtown as a key business hub going forward. In the meantime, the Inner City Zone could also be well positioned as an alternative business district, represented by notable integrated projects such as Time City, Junction Square, Kantharyar Centre, Golden City, and HAGL Myanmar Centre, to name some. By 2019, Colliers expects the Inner City Zone to represent nearly 80% of the total supply. (See Figure 2)

The liberalisation of the insurance sector

While years in the making, foreign insurance providers will finally be given the green light to conduct business in Myanmar. Following the Ministry of Planning and Finance’s early announcement in December, life insurance providers will soon be given two options to operate. The first option allows not more than three licenses for foreign life insurers to operate as wholly-owned subsidiaries. The second allows foreign life insurers with a representative office in Myanmar to form a joint venture with a local life insurer. Meanwhile, non-life insurance providers with representative offices in Myanmar will be allowed to form a joint venture with local non-life insurers.

As Colliers views it, this recent development is set to boost demand for quality office spaces. One of the investment vehicles for insurers is property, especially office buildings, as they can invest in more illiquid assets. Hence, we can expect multinational and local insurers to add their mark to the actual real estate landscape. Likewise, the insurance providers, especially the foreign firms, will likely see significant expansion of staffing now that they are allowed to actively operate in the country. This industry is a people-focused business with companies using their own agents to go out and meet with potential clients. It is likely that the main offices of most of these companies will remain focused on downtown as this remains to be Yangon’s key business district. Foreign firms are most likely to choose Grade A or Grade B quality office space which will be for mostly managerial, underwriting and administration staff.

Given such, it would be ideal for developers to remain strategic with both of their existing and future offerings. The building quality complemented with a convenient location will remain key considerations among majority of tenants. Likewise, the improving quality is most likely to continue with future projects looking favorable. Rental rates should similarly be positioned based on the degree of these offerings.

Overall, Colliers believes that space requirements are set to rise in the coming years as the government endeavours to roll out more policies and reforms targeted to the liberalisation of other fundamental sectors such as the manufacturing sector.

Such an industry can similarly be a key tenant along with other MNCs who are in search of larger office floor plates. Consequently, we anticipate the continuous entry of large multinational businesses. Though many of these firms will initially require smaller configurations between 200 and 300 sq meters, the potential for larger expansions is substantial in the medium to long term.

Lease corrections to be more pronounced

Given the modest entry of new supply, the citywide occupancy rate improved by 3% qoq to end at 72% in Q4 2018. On an annual basis, the occupancy rate is also up by 5%. Flights to newer buildings should continue over the next several years as existing and future tenants are in search of proper office space coupled with the increasing availability.

Source: Colliers International

Correspondingly, we have seen a pronounced downward correction of lease rates over the past four years. Now that rents are stabilising at a more reasonable level, movement towards better quality office spaces has and will become more pronounced. In fact, as of Q4 2018, the average rental rate further declined to USD41 psm per month. The rate is lower by 2% and 6%, on quarterly and annual bases, respectively. Now that newer projects have started posting lower rental rates, this, in turn, has exerted downward weight on older and lower quality developments. Since Q4 2016, the average rental rate has settled at USD45 psm per month. The fact that rate is significantly lower than in previous years has driven higher office space take-up, especially for better quality developments; while movements from informal and lower-tier offices persist.

In H1 2019, we expect rental levels to further correct downwards given the anticipated sizeable additional of supply in the period. This trend may continue in the next two years with many untapped companies still seeking more reasonable lease rates.

Table 1: Yangon citywide lease rate

Source: Colliers International

Generally, Colliers remains optimistic that both the occupancy and rental levels will further improve once the government allows more foreign businesses to operate in the country. This especially entails implementation of investment-related reforms and further liberalisation throughout the economy. Along with the existing business expansions and the eventual easing of restrictions in various sectors, the office market should witness increasingly robust demand in 2019 onwards.

For more information, please contact:

Deputy Managing Director| Myanmar
+95 (0) 979 573 3378
[email protected]

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