Colliers International Myanmar's latest report shows that headline lease rates corrected further downwards during Q1 2018 despite the lack of new supply.

Occupancy rates however, improved, particularly in developments which previously underwent significant price reductions. As more international standard office buildings become available Colliers expects rental rates to continue to correct albeit at more reasonable levels especially in the near term. Landlords are now carefully adjusting prices to better justify both their building quality and location. While older developments, under similar pressure have started to cave in to competition.

Forecast at a glance

• Demand: Demand remains firm in newer developments as tenants become more particular with their requirements amid the trend in lowering rental rates.
• Supply: Expect total stock to almost double over the next three years. More than half of the buildings are expected to be of international standard quality.
• Occupancy Rate: Expect occupancy to decrease in 2018 given the upcoming sizable stock. However, occupancy should rebound from 2019 onwards.
• Rent: Rates from Q4 2017, to Q1 2018 remained the same at USD43.4 per sq m per month. However Colliers forcasts rates to correct further downwards to USD42.6 per sq m per month by Q1 2019. Colliers also expect the entry of better quality office buildings could exert upward pressure on the city-wide rate within the next two years.

High Quality Expectations for Upcoming Supply

Supply was unchanged as of the first quarter of 2018. Total stock remained at just over 350,000 sq m. Colliers expects the improvements in quality to persist especially as upcoming master-planned developments aim to deliver international quality office projects. By Q2 2018 Kantharyar Office Tower (Asia Myanmar Consortium Development Co., Ltd.) in Mingalar Taung Nyunt and Mindama Office Center (China Company Ltd.) in Mayangone are expected to come onstream, collectively providing more than 33,000 sq m. We project total upcoming supply for 2018 to reach more than 83,000 sq m, the majority of which is located in the Inner City.

Developments continue to build up in the Inner and Outer City with Downtown only expecting an increase in stock in 2021 after the completion of Yoma Central Office Tower (Serge Pun and Associates & Yoma Strategic Holdings) in Pabedan. Upcoming developments in the Inner City include Kantharyar Office Tower, Red-Hill Mix-Use Tower (Naing Group and KBZ Bank) in Sanchaung, and Time City Office (Crown Advanced Construction Co., Ltd.) in Kamaryut, all of which are due to be completed in 2018. Incoming development plans also adopt more modern and globally practised aesthetics, such as curtain wall systems, wider lobby spaces, and higher floor to ceiling ratios.

Colliers advises landlords of older projects, particularly, to commence renovation and restoration plans in order to compete effectively with new projects and to avoid further downward adjustments in rental levels. 

Occupancy Rates Inch Towards a Recovery

As of the end of Q1 2018, the city-wide occupancy rate has started to rebound to 68% QOQ, up by 1% as supply remained unchanged. The rate had decreased from Q3 to Q4 2017 by close to four percentage points given the sizable stock added towards the end of 2017. Tenants from older developments have taken advantage of the competitive rental rates newer and higher-quality developments offer, as they expand and upgrade their requirements. Meanwhile, older developments which previously made rental reductions are beginning to attract more tenants coming from rather informal office spaces. These buildings are similarly providing alternative venues for new market entrants with limited budgets. 

While affordability, location and quality remain the primary concerns for tenants, Colliers has observed tenants taking other factors into account. Staff accessibility, building health and safety standards, as well as provisions and proximity to affordable food and beverage options have all increased in importance. To further attract high-profile tenants, Colliers recommends developers integrate these related services and building specifications. Building design should adopt international standard practices in terms of tenants’ safety and wellness (e.g. building safety drills, redundant security measures, and efficient ventilation systems). 

Rents Decrease Marginally

The average city-wide rent decreased marginally to USD43.4 per sq m per month in Q1 2018 from USD43.5 in Q4 2017. Colliers expects average rent to stabilise at just below USD43 in the near term. However, the entry of better quality developments could well exert upward pressure on rents in the medium term. Landlords of developments with high occupancy rates are more hesitant about making price reductions considering tenants are still locked in their old contract terms. However, this is likely to change as better and more options become available. Higher rates set by upcoming better-quality developments is probable and could likely skew rents upward should demand continue to grow.

Compared to older developments, projects introduced in recent years offer more competitive rents - ranging from as low as USD23 per sq m for the lower-grade buildings to as high as USD58 per sq m per month for the higher-quality developments. Average rents for the Inner City have started to match those of Downtown, standing at between USD42 per sq m per month and USD50 sq m per month. In the near term, Colliers expects certain promising office buildings in the Inner City to achieve rents matching or perhaps slightly surpassing the rents achieved in Downtown. Overall, we expect rents in master-planned developments, integrated projects and well-established commercial zones to achieve premium levels. 

Click here to view Colliers Yangon Office Report Q1 2018.

For more information or to discuss the report email Karlo Pobre or Paul Ahlgrim, from Colliers International Myanmar via the contact details below.

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