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COMMERCIAL RESEARCH

LOGISTICS PROPERTY MARKET OVERVIEW H2 2018

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The Thai economy remained strong in the second half of 2018, expanding at the fastest rate in six years. GDP expanded by 4.1%, driven by stronger domestic demand and public spending that has offset weakened export growth and the global economic slowdown.

ECONOMIC OVERVIEW• The total warehouse supply in Thailand is 5,176,778 square meters, having increased by 6.2% Y-o-Y • Market occupancy rate increased to 83.0% from 81.6% in the second half of the year • The net absorption rate remains positive at 136,793 square meters

• Mean asking rents declined for the 3rd consecutive year to 151.4 baht per square meters per month

KEY FACTS

Private consumption and investment grew at a rate of 4.6% and 3.9%, respectively, both at the highest pace in the past six years. Meanwhile, export growth eased to 7.7% Y-o-Y from 9.8% achieved in 2017. Imports expanded by 14.3%, up from 13.2% in the previous year. In H2 2018, trade balance posted a deficit of 87.462 billion baht that contrasts to the surplus achieved over the past 3.5 years. Export competitiveness has been dampened as a result of the US-Sino trade dispute, and the strengthening of the Thai baht against the US dollar at a faster rate than its trade competitors in Asia. On the other hand, the total number of

containers passing through Laem Chabang port in H2 2018 was at 4,158,608 TEUs, representing a growth of 5.4% Y-o-Y. The continued growth in international transactions through the port indicates sustained strong demand for logistics services and space in Thailand. In addition, Thailand maintains a strong competitive advantage due to high quality infrastructure, location, supply of labour, and banking and financial systems, as well as the investment development and promotion plan that makes the nation an attractive production base for companies considering relocation given the prolonged US-Sino trade dispute.

SOURCE: BANK OF THAILAND

FIGURE 1

THAILAND BALANCE OF TRADE

FIGURE 2

NUMBER OF CONTAINERS PASSING THROUGH LAEM CHABANG PORT

SOURCE: BANK OF THAILANDREMARK: TEU – TWENTY-FOOT EQUIVALENT UNIT CONTAINER

MARCUS BURTENSHAWExecutive Director, Head of Occupier Services and Commercial Agency

“ Private consumption has been largely responsible for the growth in demand for warehousing, led by the expansion of occupiers in the consumer goods and e-commerce sectors. We expect that growth might cool in H1 with uncertainty associated with change in the political landscape. However, a smooth transition to a democratically elected government and a peaceful reaction to the results should set the stage for growth.”

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SUPPLY

SUPPLY DISTRIBUTION

In H2 2018, the total warehousing space did not increase by a significant amount, as only 78,578 square metres of space were added, increasing the total supply by 1.54% H-o-H. The total warehouse supply in Thailand is 5,176,778 square metres, having increased by 6.19% Y-o-Y.

Given limited entry, the supply distribution for warehousing space remains largely unchanged from the previous half of the year. Samutprakarn province still holds the largest market share at 30%, although the total supply has increased by 1.7% H-o-H to 1,559,831 square metres. Despite its relatively large size, the market continues to expand as it serves as a link between Bangkok, Suvarnabhumi Airport, and the EEC region.

Ayutthaya, which currently holds 14% of market share, achieved the highest growth rate in supply in this half, increasing by 3.4% H-o-H and 14.1% Y-o-Y.

COMMERCIAL RESEARCHLOGISTICS PROPERTY H2 2018

SOURCE: KNIGHT FRANK (THAILAND) - OCCUPIER SERVICES & COMMERCIAL AGENCY

FIGURE 3

THAILAND WAREHOUSE SUPPLY

FIGURE 4

THAILAND WAREHOUSE DISTRIBUTION BY PROVINCE

TABLE 1

THAILAND WAREHOUSE SUPPLY BY PROVINCE



Eastern Seaboard

Pathumthani – Ayutthaya

Suvarnabhumi – Bangpakong

Others

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FIGURE 5

THAILAND WAREHOUSE SUPPLY, DEMAND AND OCCUPANCY RATE

TABLE 2

THAILAND WAREHOUSE OCCUPANCY RATE BY ZONE

FIGURE 6

THAILAND WAREHOUSE SUPPLY – DEMAND DYNAMICS

DEMANDDuring H2 2018, the total occupied warehouse space increased by 136,793 square metres to 4,295,427 square metres, increasing 7.98% Y-o-Y. Due to limited new supply, demand outpaced supply, which led to an increase in the occupancy rate from 81.6% to 83.0%.

Bangkok remained the strongest market as occupancy rates increased by 0.5% to 100% in this half. The Eastern Seaboard showed further signs of growth, as the area is 69.2% occupied. This represents an increase of 3.3% H-o-H and 4.7% Y-o-Y, the highest growth rates among all zones.

Net absorption in this half declined from 180,546 square metres to 136,793 square metres. This can partly be attributed to the limited supply entering the market in this half. Nevertheless, positive net absorption indicates that there is a still healthy demand for warehousing space in the market.




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COMMERCIAL RESEARCHLOGISTICS PROPERTY H2 2018

FIGURE 7

THAILAND WAREHOUSE AVERAGE ASKING RENT BY ZONE

FIGURE 8

THAILAND WAREHOUSE AVERAGE ASKING RENT SPREADS

RENTAL RATES Mean asking rents for warehousing space declined to 151.4 baht per square metre per month from 152.4 baht per square metre in the previous half of the year. Rents have been declining since H2 2015, falling by 1.6% Y-o-Y by the end of 2018. Rents fell Y-o-Y in all areas with the greatest decrease occurring in the Pathumthani – Ayutthaya zone, where rents decreased by 3.9% Y-o-Y. Pathumthani - Ayutthaya also experienced the largest increase in supply, which is a possible contributing factor to the rental compression that occurred in this area.

Rent spreads in the Eastern Seaboard and Pathumthani – Ayutthaya remained consistent with the previous half of 2018 at 120 baht – 180 baht per square metre per month. Bangkok experienced some compression as the spread decreased from 135 baht – 185 baht to 120 baht – 180 baht. Maximum asking rents in Suvarnabhumi – Bangpakong reached 190 baht per square metre for the first time since H1 2017.



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Thailand Contacts

Phanom KanjanathiemthaoManaging Director+66 (0)2643 8223 Ext [email protected]

Surasak Limpa-ArayakulExecutive Director, Head of Valuation and Advisory+66 (0)2643 8223 Ext [email protected]

Roong SitthisankunchornExecutive Director, Head of Property Management+66 (0)2643 8223 Ext [email protected]

Marcus BurtenshawExecutive Director, Head of Occupier Services andCommercial Agency (OSCA)+66 (0)2643 8223 Ext [email protected]

Frank KhanExecutive Director, Head of Residential +66 (0)2643 8223 Ext [email protected]

Phuket Contact

Nattha KahapanaExecutive Director, Head of Knight Frank Phuket+66 (0)7631 8151 Ext [email protected]

Important Notice© Knight Frank LLP 2019 - This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analy-sis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

Knight Frank Commercial Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs.

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OUTLOOKThe increase in occupancy rates in H2 2018 is likely due to a combination of limited new supply and falling rents, leading to demand catching up with supply. It is forecasted that over the upcoming year, supply will pick up again as a result of investments made by both the private and public sector. The area of focus will be the Eastern Seaboard, following the sustained implementation of the Eastern Economic Corridor (EEC). There will likely be some dampening effects from the global economic slowdown and weaker export growth throughout the year. It is expected that rents will continue to compress for the time being, as new supply compete to attract tenants.

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