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Property Watch: Impact of weather on the property market

Legacy Phuket Gazette

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PHUKET: A lot is said about the negatives and positives of the business and economics of the Phuket property market, but it seems that less is said about the realities of the weather here on our green and often wet island, and how that impacts on property.

What is said is often encapsulated in a sugar-coated cloud of positivity – I recall the time there was a campaign within the property market among agents and the like to rename ‘Monsoon Season/Wet Season’ as the ‘Green Season’. This, like the drooping electric cables scattered between various concrete pillars, didn’t really hold up to the test of time.

Before I launch into a property weather analysis, I would like to say that one of the reasons I moved to Thailand was for the tropical climate. I can further confirm that I didn’t really know what tropical meant until I experienced its fluctuations year in and year out.

One of the main aspects of the weather system here means that new property looks great in high season, but if it isn’t maintained it can quickly look like old property. This effectively means that asset management of an estate and maintenance of a property is very important and therefore buying a property can and should involve looking closely at the management plan.

There is a premium for property which faces the sea or is anywhere near a piece of sand and a glimpse of the sea is involved. The premium doesn’t just involve the premium for the view, it involves having to re-sand, re-paint and recalibrate sun-warped sliding doors, replacing balcony wood and constantly redesigning overhead shade that perhaps the architect didn’t think looked cool in the promotional 3D renderings but your family might appreciate as a respite when they visit.

Aside from the effect of salt and sun, there are quite wide ranging effects from water. It never ceases to amaze me, or the web forum trolls, that there appears to be great surprise expressed each year about the sheer volume of rainfall and that the rainfall is at its most intense for an average of 8 months out of the year.

The fact of the rainfall means that many houses without guttering will need it to prevent damage to their walls and structure. Further, the rain causes that freshly poured and oh-so-popular sandwash to become slimy and brown, unless you treat said sandwash with many chemicals and also employ your own jetwash or outsourced jetwashers to intervene.

The rain also causes legal disputes, fortunately or unfortunately depending on what business you are in. Seemingly unknown to many property developers and land owners, there is a provision in the civil and commercial code of Thailand which addresses this. The second part of section 1340 reads “…if any damage is suffered by reason of such artificial drainage [being from higher land] the owners of the land may, without prejudice to any claim for compensation, require the owner of the higher land, at the owner’s expense, make drainage through lower land to a public waterway or drain.”

There are, conveniently, some Supreme Court cases that support this principle, I am reliably informed.

So, as you watch the raindrops fall on the uneven road surfaces of our developing highways, consider for a moment the impact this water has on the property market here in Phuket and how it could affect your investment and expenses here. If you are busy drafting up a brochure describing the seasons, or reading such a brochure thinking about your ‘usage rights’, consider for a moment, how many times during the ‘green season’ the swimming pool will be used by you and how many times it will need to be cleaned. Consider how many times you might not be able to go to the beach in an eight-month rainy period, and how many times the roads and underpasses will flood, albeit temporarily.

If you are a contractor about to tell your employer that you will ‘finish in 3 months, no problem’, don’t forget – it will rain, your workers will get wet, your materials will get wet and so on. And if you are planning on laying any electric cables – they may get wet too.

Be under no doubt – Phuket is a green island, and still beautiful in my opinion, but it is also undoubtedly very wet.

Desmond Hughes has been an owner and operator of his law firm in Thailand for 14 years, and is a Senior Partner at Hughes Krupica law firm hugheskrupica.com.

— Desmond Hughes

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Business

The ‘office’ is SO last century. Say hello to the world of remote working.

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The ‘office’ is SO last century. Say hello to the world of remote working. | The Thaiger

Do you work from home? Or can you work anywhere have a laptop and wi-fi? Are you a trader or selling stuff online? You’re part of a growing trend in modern work practices as the fancy city office becomes an expensive relic of the ‘old normal’.

2020 became the year of people working from home. In same case, it was the year of being told to stay home so there wasn’t much option. During Thailand’s lockdowns in April and May, offices were closed and employers had to scramble to find alternatives to the “office”. With the rise of Zoom and other video conferencing software, ways of tracking time-on-keyboard and hundreds of other monitoring apps, employers suddenly discovered they could actually run their businesses without an office. There were certainly new dynamics and unforeseen challenges, but for the most part, it worked.

Companies had worked from central office locations for a hundred years. The remote/work-from-home option was a new test for everyone involved but many early wrinkles have been ironed out after an accelerated learning curve due to the Covid-19 situation.

In the early days, most companies weren’t ready to close up the office and send their workers home claiming that some basic operations such as accounting and invoicing were not yet able to be done online (Thailand has a love of hard-copies and paperwork).

Team meetings were also more clumsy online. There were even companies that told their staff to keep coming in to the office as there was no legal barrier preventing them from doing so. But many smaller and less digitally-savvy firms required workers to come in and risk contracting the virus.

In the US, the Bureau of Labour Statistics found only 29% of jobs in the US could be completed from home, while in Thailand (a far less digitised and service-based economy) the percentage was probably lower.

But larger Thai firms, such as Unilever and True Digital allowed nearly 100% of their white-collar employees to work from home early during the lockdown phase. Other companies adapted quickly and found that working remotely, or from home, allowed their businesses additional flexibility. Many workers also say they enjoyed the lack of office interruptions too.

While Unilever was unable to send its factory workforce home, it was able to shift all sales and executive personnel fully online to avoid possible Covid exposure finding hitherto unknown improvements in the firm’s e-commerce presence.

Thai startups such as Eko (“your complete employee experience platform”) was able to capitalise on the rise of work-from-home with its “work anywhere” employee application. Eko experienced 200% year-on-year sales growth in the first half of 2020 as companies looked for solutions to connect employees from home.

Teleconferencing juggernaut Zoom was trading shares at US$88 at the start of 2020, to rise to $568 by mid-October, only to trail off to $337 by the end of the year – the fickle nature of a fast-rising tech start-up.

Employees, generally, prefer the shift to working from home and the flexible hours. It doesn’t suit all businesses or all employees, but it suits many. A study by by recruitment specialists Robert Walters Thailand found 75% of workers want opportunities to work-from-home and only 25% want a return to full-time work at the office.

Last month the police and the Bangkok Metropolitan Organisation police urged businesses to allow employees to work from home at least once a week to cut down on traffic-induced pollution.

The Covid-19 pandemic also forced countries to rethink their supply chains and reliance on foreign goods. China, for example, responded to the outbreak by shutting down factories, some of which other countries relied on for medical equipment needed to fight the virus, and vital components needed for manufacturing of goods in China and other countries.

Whilst there was an initial push-back on China, the international supply chain has become so entwined with Chinese businesses and manufacturers, and China with other countries, that it would take decades to unwind.

One of the biggest winners this year has been the rise of the delivery services. Grab Bike, Food Panda, We Serve and Line Bike are the best known but there are start ups making inroads into the growing delivery space as well as many smaller and larger businesses that have their own deliveries.

These businesses have been able to thrive on the ‘new normal’ stay-at-home culture. Eat at home, work at home, shop from home, watch movies at home – the trend is growing as people realise that they can get almost everything delivered, timely, efficiently and at little additional cost, usually free.

The big test will be once the Covid situation settles down, whatever that means and whenever it happens, and companies look back at the successes and failures of their employees working from home. But there’s no doubt the pandemic and the imposed restrictions ave accelerated the need to develop new ways of allowing employees to work safely, remotely or from home.

The successful transition of some office work to work-at-home will also put continued pressure on the commercial real estate market. Many employers are looking at their monthly office rental outgoings and starting to measure the return on their investment.

The rise of the work-at-home phenomenon and the digital nomad will be the main trends for office work in 2021.

This article was written laying on a couch, at home, at 6.15am in the morning… because we can.

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Business

Future of Thai department stores is being redefined

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Future of Thai department stores is being redefined | The Thaiger

While department stores have been a familiar destination for Thai people for many decades, CBRE, an international property consultant, is witnessing a decline in popularity and stunted growth, particularly in 2020 when Covid-19 adversely impacted the sector. CBRE believes that to adapt to e-commerce disruption and the changing consumer behaviour, department stores in 2021 (and beyond) will have to fine-tune their business model in terms of customer shopping experience, inventive activities and value-added programmes to continue their status as the second home for Thai shoppers.

Jariya Thumtrongkitkul, Head of Advisory and Transaction Services – Retail, CBRE Thailand explained… “While department stores offer shoppers convenience, saving them time with many varieties of goods grouped in different departments and allowing the shoppers to find and compare products and choose what they want, the traditional department store model does not fit the needs, lifestyle and behaviour of its shoppers anymore, especially the new generations.”

According to CBRE Research, the total retail supply in Bangkok as of Q4 2020 increased to 7.8 million square metres, a 1.16% increase year-on-year. Out of this, only approximately 3% was reported within the department store format. The department store market in Thailand is mainly dominated by two domestic retail giants, with Central Group and The Mall Group holding the largest market shares. They do not only concentrate in Bangkok, but have also opened department stores in many major cities throughout the country which allowed them to build bigger networks and grow their customer base.

In the past few decades, Japanese investors had also shown interest in entering the Thai market and offered local features that are well-known in Japanese department stores: simplicity, premium quality and services. However, with strong competition many Japanese department store operators have ceased their expansion plans. Some have exited the country due to the fierce competition against the local players, their performance in Thailand and the shrinking Japanese department store business, especially in overseas countries.

“The department store concept as a one stop shopping place is still in demand for certain groups of customers. However, with the e-commerce disruption and changing consumer behaviour, department store operators need to adapt their models, offerings and value-added services to their customers to cope with the challenging economic and market conditions.”

Adaptability of department stores can be highlighted into 3 main parts: customer shopping experience, inventive sales and marketing activities, and value-added programmes. While more and more younger generations prefer to shop online to save time and money, the brick-and-mortar store is still believed to be the second home for Thai shoppers. Department stores should be more agile in the era of e-commerce and adopt some technological innovations such as in-store automation and mobile payment solutions to reach the younger crowds.

Design is another aspect that plays an important part in customer shopping experience. Department stores can be more creative in remodelling traditional department store space into some ingenious and interactive space with a great design and right product portfolio mix for their customers.

The Mall Group, for example, has launched its first “Lifestore” concept at The Mall Ngamwongwan at the end of 2020 by redesigning and renovating its traditional department store space to enhance customer shopping experience and enjoyment.

The second part to be considered for the adaptability comprises inventive activities related to sales and marketing. The prices of products being sold in a department store are normally set high to cover the higher establishment and operating costs by operators, narrowing their target to only upper- to high-income customers.

Brand offerings may also no longer meet fast-changing customer needs since today’s shoppers have more choices in buying products online, not to mention the declining footfall due to the growth of e-commerce. CBRE Research has seen domestic players pushing hard to drive sales growth via numerous promotions, marketing campaigns and activities and collaboration with credit card companies during seasonal sales.

The third part consists of value-added programmes such as personal shopper, customer loyalty programme, on-demand solution and service personalisation, which have become a new trend as customers, including the aging population, are now more sophisticated and demanding.

The retail landscape has changed drastically in the past few years from various factors like technological advancement, consumer behaviour and preference as well as Covid-19. Cookie-cutter strategy will be a thing of the past, especially for department stores where the format and offerings have remained the same for decades.

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Bangkok

Bangkok’s commercial property market struggles through 2020

The Thaiger

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Bangkok’s commercial property market struggles through 2020 | The Thaiger

This year Thailand’s developers had to work around the effects of government lockdowns and restrictions because of the Covid-19 pandemic. Indeed significant changes have occurred to the commercial property market in Thailand. CBRE Research reports that the Bangkok office market suffered a significant change in the net up-take, whilst the retail market consumer confidence index fell and the hotel market struggled to maintain the cash flow.

It wasn’t a good year.

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During the initial lockdown, during April and May, adoption of work-from-home not only changed how we implement social distancing during the Covid-19 pandemic period, but showed businesses and employees that the workers could work remotely, and effectively. Many organisations have now revisited their workplace strategy, and some have started changing how and where each business unit operates.

Coupled with financial pressure on businesses, the situation resulted in a contraction in space sizes by many tenants, especially in Grade B Non-CBD locations where tenants are more sensitive to financial illiquidity. In addition, some tenants were unable to move into their office space as the office fit-out could not commence due to the lockdown. CBRE Research found that in the first nine months of 2020, the net take-up increased by 21,000 square metres compared to 128,000 square metres in the same period last year. However, CBRE Research also reported that office pre-leases were seen in the growing businesses such as e-commerce and technology platforms where the demand for workspace has doubled.

According to CBRE Research, the total office supply in Bangkok as of Q3 2020 was 9.17 million square metres, increasing by 2.1% year on year, with key completions being Spring Tower and The PARQ in Q1 2020. While this year has new office supply of 345,900 square metres, the negative take-up has resulted in the increase in vacancy rate from 6.9% at the end of last year to 8.9% as of Q3 2020.

While the overall occupancy in the Bangkok office market has slightly dropped to 91.1%, the best performer this year is in the Grade A Non-CBD segment where the total supply is only 674,000 square metres, representing 7.4% of the total supply in the market. The expansion of mass transit systems and urban development have increased the attractiveness of high-quality buildings in Non-CBD locations where rents are much lower compared to CBD locations.

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Thailand’s retail industry has slumped as shopper have experienced a drop in spending power. The consumer confidence index also fell to its lowest point in 20 years in April 2020 at 47.2. Even though the confidence has improved in the following months, it is still a long way from its pre-Covid-19 levels. Due to business disruptions and increasing financial burden, the household debt as of Q2 2020 was at 83.8% of the total GDP, increasing from 78.9% last year.

CBRE Research reports that the Bangkok retail supply totalled 7.8 million square metres as of Q3 2020, increasing by 2.4% year on year from the opening of 12 new retail developments with combined retail space of 100,000 square metres with Siam Premium Outlet near Suvarnabhumi Airport being the biggest development this year.

While the occupancy rate across the market remained high at 96%, CBRE Research has started seeing a drop in retail developments in downtown areas of Bangkok which are more dependent on demand from tourists rather than locals like those in the midtown and suburban locations.

How fast the retail industry can recover from Covid-19 will largely depend on how effective the stimuli from the government such as “Kon-La-Khrueng” (Let’s Go Halves) and “Rao-Tiew-Duay-Gun” (We Travel Together) campaigns are as well as when international travel restrictions will be lifted. The amount of retail space in the market, especially in Bangkok, cannot be sustained only by domestic demand in the long run.

HOTELS

Tourism, one of the key sectors that drives the Thai economy, has suffered greatly this year as there were no inbound international tourists from Q2 onwards. The total tourist arrivals for the first nine months in 2020 stood at only 6.7 million compared to almost 30 million in the same period last year. Of those 6.7 million, the vast majority visited during Q1 before the border closures.

Bangkok hotels have seen the average occupancy drop to as low as 6.7% in April after the country went into lockdown but managed to recover slightly to 13.7% in Q3, solely relying on ‘staycation’ travel. Despite the lifting of the lockdown measures in June and hotels being allowed to resume operations, there was no significant sign of improvement in the market as international travel restrictions have been still in effect.

Some hotels have decided to open partially with heavily discounted pricing while some operate only their F&B outlets to generate some revenue to keep cash flow going. Some hotel owners are facing a situation that they have never planned for, a scenario where there have been no tourists for more than 9 months. This has put them under pressure and some have decided to put their properties on the market.

As of Q3 2020, the total hotel supply in Bangkok was at almost 50,000 keys, increasing from the previous year by only 2.8% as there were limited hotel openings this year. Based on what has been announced, CBRE Research has estimated that there will be 9,200 more keys that will be added into the Bangkok hotel market by 2023 which will further intensify competition.

SOURCE: CBRE

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