A year ago, as the post-pandemic real estate market was contemplated, we sounded a note of caution regarding the recovery pace for each sector.

According to CBRE’s 2023 Asia Pacific Real Estate Market Outlook Mid-Year Review, the Asia Pacific commercial real estate investment market is expected to remain challenging due to prolonged interest rate hikes, inadequate price corrections and a slower-than-expected recovery in mainland China.

CBRE has adjusted its full-year projection for Asia Pacific’s commercial real estate investment volume, forecasting a decline of 15% before recovery begins in the first half of 2024. 

While market sentiment and activity levels vary, the hospitality sector, in particular, continues to benefit from improved sentiment. This mid-year report reflects on the trends driving tourism and hospitality, along with an overview of the broader real estate market. 

Despite concerns about the recovery timeline for the Bangkok hotel market after the pandemic, it is recovering swiftly. According to Smith Travel Research (STR), revenue per available room (RevPAR) and the average daily rate (ADR) have consistently surpassed 2019 levels in each quarter since travel restrictions to Thailand were lifted. Only the occupancy rate lags behind 2019 levels. This is unsurprising given the marked discrepancy in international tourist arrivals to Thailand – peaking at 39 million in 2019 and projected to reach 25 million this year.

In terms of source markets, over 75% of international arrivals hail from Asian countries. Short-haul flights have been pivotal in this recovery, while long-haul flights continue to trail behind pre-pandemic levels. Among the top seven nationalities visiting Thailand, most have returned in numbers matching or surpassing 2019 levels, except for China, where arrivals this quarter are less than 37% of those in the same period of 2019.

Ms. Chotika Tungsirisurp, Head of Research and Consulting at CBRE Thailand, commented, “As we enter the traditional low and shoulder seasons, it will be interesting to see if hotels can sustain their rates and continue to exceed pre-pandemic levels. International arrivals should continue to be monitored both in terms of volume and any indications of recovery in the long-haul markets. The return of Chinese arrivals in the numbers previously seen seems to be a key factor that has yet to fully materialize. However, the upcoming implementation of a temporary visa waiver for Chinese nationals is a promising development that is likely to boost visitor numbers.”

The Bangkok hotel market remains highly competitive, with a projected 10% increase in hotel keys by 2025, bringing the total number above 86,000 and ensuring that the market will remain as dynamic and competitive as ever. 

In comparison to the regional market, the slow return of mainland Chinese tourists continues to weigh on growth. The recent recovery in room rates is showing signs of plateauing, with international arrivals to key markets in Asia Pacific (excluding mainland China) standing at around 71% of 2019 levels as of May 2023.

Market Outlook

Q2 2023 marks the third quarter following the lifting of all pandemic-related restrictions in Thailand, with each sector of the market recovering at its own pace. While certain sectors, like hotels, recovered swiftly, others saw more gradual growth, as seen in the office market, which has substantial new supply.

Overall in Asia Pacific, increasing leasing activity is seen in the office market, with both existing and new companies favoring agile office space emphasizing flexibility. Multinational companies lead in committing to new premises, capitalizing on favorable conditions, while large domestic occupiers hesitate to relocate, possibly due to absent dedicated global or regional teams to facilitate policy rollout.

While in Asia Pacific, office leasing sector could decline up to 5%, impacted by weaker demand in mainland China. As of March 2023, the region's average office utilization reached 65%, with North Asia back to pre-pandemic attendance levels.

According to Ada Choi, Head of Occupier Research, Asia Pacific, for CBRE, "flight to high quality and green buildings will remain prominent trends. With vacancy rising to a 20-year high in the first half of 2023 and expected to further increase for the rest of the year, the market will continue to favor tenants, as they will have ample upgrading options to choose from."  

“In Thailand’s residential market, the housing sector remains the focus of both developers and domestic buyers, with condominium activity concentrated in mid- to lower-end segments in midtown and suburban Bangkok. The dearth of new launches in the downtown condominium market continues to be a major challenge for the sector, along with the rising cost of mortgages and the fall in consumer spending power over the short- to medium-term,” Ms. Chotika added.

The retail sector’s recovery continues, with the consumer confidence index (CCI) reaching a three-year high in June in Thailand. Retail landlords are investing in existing and new locations, with more than 1 million square meters of net lettable area under construction, half of which will be completed by 2025. The recovery in consumer confidence and the return of international tourists has helped the sector gain confidence. However, the sector is still some way off pre-pandemic levels.

In Asia Pacific, the retail sector strengthens with vacancies in core locations filling gradually. Many markets expect modest rental recovery, notably Hong Kong SAR, Tokyo and Singapore.

Thailand’s industrial sector is witnessing increased demand for industrial land, driven by Chinese manufacturers in Mainland China and ROC expanding overseas. Ready-built factories (RBF) and speculative construction are gaining traction due to the lack of supply in the market. With new developers entering the logistics market, both domestic and in collaboration with overseas joint venture partners, the sector is becoming more competitive, especially for leasing pre-commitments and built-to-suit configurations.

While regional logistics rents are resilient in H1 2023, growth might slow in tight markets like Singapore and the Pacific.

“Overall, Q2 2023 reflects improved sentiment across most sectors. With the formation of the new government finalized, we anticipate a positive impact on all sectors,” Ms. Chotika concluded.