MIXED PICTURE FOR CITY CONDO LEASING MARKET
Competitive edge depends on size, with small units facing more competition and larger ones benefiting from tight supply
The condominium leasing market in Bangkok’s central business area (CBA) has been generally characterised by a rapid growth in new supply over the last several years. However, the market comprises different segments that perform differently. While leasing demand remains strong, smaller units are facing stiff competition whereas larger units are performing better, thanks to tighter supply.
By type and size, studios and one-bedroom condominium units in the CBA are seeing the strongest competition in the leasing market due to rapid growth in supply put up for rent. This has reflected the continued trend in which most of the new projects developed over the past few years have offered smaller units that are easier to sell as they reach a wider base of buyers.
Confronting less fierce competition is the two-bedroom segment where supply is much lower than that in the studio and one-bedroom segment. Rentals for two-bedroom units range between 50,000 and 75,000 baht per month. However, it is interesting to note that in the twobedroom segment many tenants prefer units in older buildings that generally offer larger space.
In addition, older buildings feature relatively larger common spaces and more extensive recreational facilities including large swimming pools, fitness/sauna rooms and tennis courts that are not typically provided in many newer condominium projects.
Larger units (three and four bedrooms) and penthouses have seen the lowest competition in the leasing market, thanks to a relatively fair balance of supply and demand in this segment. While the growth in new supply in the segment has slowed for several years, there has been continued demand from families of expatriate executives working for public and private international organisations in Bangkok. Monthly rentals range between 120,000 and 180,000 baht for three-bedroom units, and 150,000 and 300,000 baht for four-bedroom units and penthouses, with the highest rates being commanded by units in ultra-luxury developments.
Rents for newly completed units continue to rise: Despite increasing competition in the leasing market, rents of condominiums in the CBA have continued to rise this year. While rents in older developments have generally stayed flat, rents for units in buildings completed this year are higher than for those completed in 2015.
Based on the condominiums that JLL is letting on behalf of owners, asking rentals for units in buildings completed this year are generally higher than those completed in 2015 by approximately 10%, while rentals of units in buildings aged five years and older stayed flat.
Continued increase in prices of new condominium projects in the CBA are among a few major factors that push up condo rentals — unit owners are asking higher rents to reflect the higher purchase prices. According to JLL’s Thailand Property Intelligence Centre, the average off-plan sale price in the CBA in the third quarter of 2016 rose by 12.5% year-on-year. The third quarter marked the sixth straight quarter of double-digit year-on-year sales price growth in the CBA, driven by increasingly scarce land, which has driven prices in new projects to new heights. That said, prices have grown at a faster pace than rentals.
Another factor that allows for room for condo rentals to grow is tenants’ preference for newer buildings. Newly completed buildings generally fetch rentals that are 10-20% higher than for units in buildings aged between five and nine years, and 30-40% higher than those in buildings 10 years or older. Tenants are willing to pay these prices for newer units in most cases.
More leasing demand from Thais: Foreigners residing in Bangkok have been the main source of demand for rental condominiums in the CBA, with Japanese expats remaining the top source. Nonetheless, rental demand from Thais has increased this year. Thais looking for rental condominiums in the CBA have accounted for approximately 10% of all inquiries that JLL has received so far this year, compared with less than 5% in previous years.
Most of the inquiries are from Thais working for companies with offices in the CBA and looking for small units with asking rentals of approximately 25,000 baht per month. There is also Thai demand for larger units. In a recent case, JLL concluded a lease agreement for a four-bedroom unit at 185 Rajadamri secured by a Thai tenant at a monthly rental of 300,000 baht.
Maintaining competitiveness: The condition of a condominium unit is one of the major factors determining marketability. Units that are always well maintained and kept like new have a higher chance of attracting tenants, and commanding higher rents.
For older units, renovation has proved to be an efficient strategy that could enable the unit to achieve a higher rent. A 20-25% increase in rents can typically be expected after a full refurbishment.
The condition of the condominium building and common area is no less important. Some older condominium buildings can deteriorate — and so can the competitiveness of units in these buildings if they are not regularly maintained. The quality of building and property management counts for a lot in this aspect.
There are a number of older luxury condominium buildings that are well managed and maintained, and units in these buildings are able to sustain their competitiveness despite the strong competition in the leasing market.