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Research & Forecast Report

Yangon | Serviced Apartment Market 4Q 2014

Developers beginning to take interest over limited supplyThe total supply of serviced apartments grew meagrely in 2014, with only 30 additional units introduced. In the near future, the pipeline will remain weak, but it is set to expand once new and large-scale developments are completed within a span of five years. In the meantime, incoming foreign expatriates will continually face accommodation challenges as inventories are extremely limited.

Yangon continues to lack good-quality and relatively smaller-sized units – a preference of most professional expatriates. However, developers are beginning to take heed of what the market demands, creating more studio and one-bedroom units for the development mix.

The citywide occupancy rate continued to grow by 9% YoY. With limited new supply in 2015, the rate is seen to hit the 98% level, as was in 2012. Meanwhile, rental rates in almost all unit types grew by high single digits annually. The completion of branded and premium-quality serviced apartments going forward will exert upward pressures on the overall rent.

Forecast Direction

4Q 2014 – 4Q 2015

New Supply

Occupancy

Rent

2 Research & Forecast Report | 4Q 2014 | Yangon | Serviced Apartment Market

New supply weakened in 2014The number of new serviced residences weakened in 2014 with only 30 additional units introduced. This figure is negligible compared to 2013’s 348 units. Since the completion of the sizeable developments: SOHO Diamond and Shangri-La Residences in 4Q 2013, only two new mid-sized projects were subsequently delivered, namely, The Residence @ 26 by Myanmar Seilone and Inya Myaing Serviced Apartments by Green Vision in Sanchaung and Bahan Townships respectively.

At present, Yangon’s total supply stock is at 1,021 units in spite of occupancy rates remaining at an all-time high. Consequently, the expected surge in expatriate demand will continually be unsupported by the current low-level inventory, at least in the near future.

Given the chronic shortage in supply, developers are now ramping up projects targeted to be completed within the near to medium term. For instance, to accommodate the pent-up demand, Kokkine Residences by Green Vision is slated to be completed within the next six months. This development, consisting of 23 units, is located in Bahan Township in the Inner City Zone. Meanwhile, the on-going expansion of Sakura Residence in Kamaryut Township will bring an additional 140 units, more than its current stock of 115 units. The second tower will most likely be completed in 2015.

Looking forward, large-scale projects such as HAGL Serviced Apartments, Daewoo Amara Serviced Residences Somerset @ 68 Residences, Wyndham @ Kantharyar Centre, Golden City, Dagon City and Accor Sebel Yangon Myat Min will significantly contribute to the supply, collectively consisting of over 2,000 units. Colliers estimates that the market will yield over 400 units in annual average from 2015 to 2019, which is higher than the previous forecast. However, sluggish construction activity in some developments will most likely cause tightening of supply.

One-bedroom units starting to surfaceBesides the supply shortage situation, the availability of studio and one-bedroom units is scant, driving most professional expatriates to incur expensive rents on unnecessarily large units. This is despite the fact that the number of single expatriates is continually rising while the city’s infrastructure and amenities remain inadequate to meet foreign families’ requirements.

Unlike other ASEAN cities, the unit mix of most serviced apartments in Yangon is heavily skewed towards two-bedroom units and above. At present, there are only 32% studio and one-bedroom units in the city, which is less than half the proportion compared to Jakarta, Manila and Bangkok. Meanwhile, the two-bedroom and above category represents a big majority of the city’s supply stock, which is significantly higher in proportion than that of Bangkok by close to 50%.

To address the product gap, developers’ initiatives, such as, introducing appropriate unit mixes with reasonable sizes, are beginning to materialise. This started with the introduction of The Residence @ 26 by Myanmar Seilone in the third quarter of 2014. Consisting of 24 units, the newly built serviced apartment is geared towards expatriates, with more than 80% of the inventory being studio (34 sq m) and one-bedroom (60 sq m). Similarly, Kokkine Residences, planned for completion in 2015, allotted 70% of the total 26 units for the one-bedroom type. Despite being classified as mid-grade, the that suit expatriate preferences.

Source: Colliers International Myanmar

Yangon Serviced Apartment Stock

Source: Colliers International Myanmar

Regional Comparison of Serviced Apartment Unit-Mix

3 Research & Forecast Report | 4Q 2014 | Yangon | Serviced Apartment Market

Occupancy rate up 9% YoY, rental rates remained on an upward trend On a quarterly basis, the citywide average occupancy rate was unchanged at the sub-96% level in 4Q 2014. However, the rate was up by nine percent compared to the same period last year. The occupancy rate of serviced apartments in the Outer City zone remained at an all-time high, at almost fully occupied levels in the whole of 2014. Meanwhile, the Inner City zone witnessed a slight decline in occupancy, particularly in Escape Avenir Executive Serviced Apartments. The development witnessed a continuous drop in vacancy over the last two quarters, a result of the tenants’ flight to better quality. Overall, the demand remained strong in the Inner City zone, driven by the improved take-up rates in 26 Residence and Shangri-La Serviced Apartment. As at the end of the year, 978 units were occupied, up by close to 100 units than that in 2013.

The forecast direction for the citywide occupancy rate is for it to hit the 98%-level by the end 2015, as was in 2012. The entry of foreign banks coupled with the subsequent awarding of foreign licenses, such as oil and gas companies and other service providers, will place upward pressures to occupancy in the immediate future. The demand will be reinforced with the hiring of local companies for foreign workers and the eventual opening of Thilawa Special Economic Zone.

Owing to car parking limitations, serviced apartments are a less restrictive development compared with residential condominiums. The Yangon City Development Council (YCDC) allows at least one parking slot in every 200 sq m of the serviced apartment’s building size. This allows developers to design relatively smaller units – a preference of many expatriates. On the contrary, residential condominiums are required a ratio of 1.2 car park slots per unit, driving projects to produce bigger unit sizes

The average rental rate of some unit types in Yangon witnessed a slight correction following the completion of 26 Residence and Inya Myaing Residence with relatively lower rental rates. The rates for one- and two-bedroom units declined by 1.5% QoQ. Similarly, the average rent for studio units declined minimally to US$3,500 per month, whereas those for three- and four-bedroom units were unchanged QoQ. However, on a yearly basis, the average rents in all unit types are up by high single digits.

The overall rent will increase moderately in the next 12 months, but is geared to trend strongly upwards once premium-grade developments are introduced.

Service Apartment Average Occupancy

Source: Colliers International Myanmar

Source: Colliers International Myanmar

Average Serviced Apartment Rental Rate by Unit Type

Karlo PobreManager Research & Advisory+95 (0) 931 336 099karlo.pobre@colliers.com

Theint Theint ThwinResearcher Research & Advisory+95 (0) 950 267 22theint.thwin@colliers.com

Tony PiconManaging Director | Myanmar+95 (0) 942 103 4026antony.picon@colliers.com

Copyright © 2014 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Colliers International Myanmar Unit 7/C (6th Floor) White Cloud Building, No. (138/142) Thein Phyu Road, Botahtaung Township Yangon Myanmar TEL +95 (0) 931 491 678

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