Myanmar’s recent opening to the global economy has seen a rise in demand for mid-tier serviced apartments in its largest city Yangon, according to a Research & Forecast Report report by Colliers International.

"We see a stronger underserved demand for mid-tier limited serviced or non-serviced apartments, yet this remains untapped with only a handful being offered in the market," the report said.

Industries that recently received licenses to operate in Myanmar have been the top sources of demand in the last couple of years. Industries including oil and gas, IT and telecommunications, and banking and finance in particular are estimated to represent more than half of the market. The greatest numbers of people moving to Yangon are coming from Japan, followed by western countries and other Asian countries.

Recent additions to the supply pipeline have eased the demand to an extent. Stock grew by 16% year-on-year to end with a total of 1,228 units in 2015 — a doubling of 2014’s growth. However, many of these developments are geared towards the upmarket segment.

"Demand coming from single expatriates or couples is now being addressed with the introduction of more one and two-bedroom units, especially from the Sakura Residence 2 development by EXE Sakura (Myanmar) Co. Ltd, completed in Q3, 2015," Colliers said.

This development boosted the stock of one-bedroom apartments in the city by 45%. Combined with Sakura Residence 1, built in 2002, the two buildings represent the largest number of stock in the market, edging Shangri-La Serviced Apartments’ 240 rooms.

However, these new developments are only temporary solutions to the supply shortage.

"The last two years saw the unveiling of only four new developments, while the occupancy rates remain at an all-time high. Despite the growth in stock, the occupancy for both one and two-bedroom categories registered a robust rate of 89% as at the end of 2015," Colliers said.

Meanwhile, with smaller inventory, the studio category reached an almost fully occupied level. On an annual basis, the city-wide occupancy rate temporarily dropped but remained healthy at 93%, according to the report.

In line with this demand, average rental rates for serviced apartments in Yangon, though relatively stable in 2015, have remained high over the last three years. For comparison, a one-bedroom unit in the Bangkok CBD costs $USD 1,900 per month for a typical 60sqm space. In Yangon, residents are paying $USD 4,400 per month for a similar unit size. While this rate dropped steadily during the first three quarters of 2015, and slightly improved in Q4 2014, it has remained at the same high range since the end of 2013.

There are projects on the horizon that will address this shortage, however.

"There are now close to 2,000 units currently in the pipeline. This is expected to build up as more projects are revealed."

"Colliers expects the upcoming developments to adopt a similar unit-mix in response to the strengthening requirements from foreign singles and couples without children leading to a preferential demand for one and two-bedroom units," the report said.

Among the upcoming developments is the Daewoo Amara Serviced Residences, which will contribute 321 units and is slated for completion in 2016. Once opened, the project, located on Inya Road, will deliver the highest stock in a single development in Yangon.

The Inner City zone will see projects such as the HAGL Serviced Apartments, Somerset @ 68 Residences, and Wyndham at Kantharyar Myanmar Centre.

"An improvement in stock is likewise anticipated in the Outer City zone once the Golden City and Polo Club serviced apartments are delivered," according to Colliers.

Meanwhile, the eventual introduction of Junction City Serviced Apartments will top up the supply in Downtown, following the absence of stock since the demolition of the Grand Mee Ya Hta Residences in 2013. Summit Park View has also announced a hotel expansion plan that will consist of serviced apartment rooms, while some projects previously envisioned as residential condominiums are now being redesigned to integrate serviced apartment components.

"Besides new supply, future better quality condominiums and mid-tier hotels with long-stay room components may result in to a more competitive playing field going forward," the report said.

Read the full Colliers International Research & Forecast Report on Yangon's Serviced Apartment Market here.