Can you give us a brief summary of the recent trends within each of the major property segments covered by Colliers International?
The residential sector has definitely had a run up in value and supply over the last four or five years. It is reaching a stage where some segments of the market appear to be approaching saturation. There are some structural weaknesses in the economy that also make future residential growth less strong than it has been. These weaknesses are in purchasing power, household debt, and the general export situation, which has been depressed, along with the global economy. All of these factors have had an impact. Domestically, banks have reined in lending a fair bit as well. We do not see signs of distress, though it is definitely not as strong as it was. The one segment that seems to be defying this trend within the residential sector is the upper-end of the market. This is being driven mainly by high net worth individuals who have little confidence in alternative investment products. There is a tendency not just in Thailand, but also throughout Asia, for wealth to gravitate to property. We see that clearly here at the top end. There is, however, no great depth to that high-end market. In the commercial real estate sector, the office segment is particularly strong. To understand this you have to realize how strong the residential market has been. In Bangkok land prices have followed condominium prices and it is all related to infrastructure development. Condominium projects are being built close to infrastructure projects, mainly the MRT and the BTS. This has driven up land and the condominium prices to the point where office developers cannot buy land. Where in other cities you might find prime road frontage in the commercial business district being snapped up by commercial developers, it is not the case here. The result is that there is relatively little new supply in the office segment, while demand is not weak.
What macroeconomic factors are driving this demand in the office segment?
Much of it is domestic expansion more than anything. There is growth in the e-commerce sector and there are more start-ups growing into bigger businesses and taking up more office space. Many of these businesses do not require much office space to start with; however, as they grow they take on more staff and can become large operations. Rents in the office segment have moved up pretty sharply. As the situation with the land prices continues, there is likely to be a continuing shortage of new office developments. We also witness a growing trend of large multinationals setting up their regional offices in Bangkok. Initially we did not see any immediate affect after the AEC was established in 2015. Now more foreign investors are coming to Thailand. Bangkok provides a center within the AEC for foreign investors who want to invest or develop projects in Myanmar, Laos, or Cambodia. However, there are still certain constraints here. One of the biggest constraints for the office market is staff availability. There is almost full employment in Thailand and the country has a demographic pyramid that is similar to China. Therefore, you do not see a lot of young people coming through and education and English language skills are lacking.
How do these trends translate to the commercial real estate market in areas outside Bangkok, especially with special economic zones (SEZs) and the government's efforts to push industry to the borders?
Thailand has an extremely centralized economy and there is really only one commercial city. There are other little pockets elsewhere; however, ultimately Bangkok is where all the business is. The government has been trying to push development out of Bangkok. This has been a theme for the last 30 years. The first stage of this was the eastern seaboard, which has done spectacularly well. Now the government is trying to replicate that success by going further afield. It has latched onto the four or five million immigrant laborers who come to Thailand for work, and bringing that work to the borders. There is some logic to this, although it begs the question why neighboring countries would not just set up these industries themselves on their side of the border if this were a feasible idea. In any case, the land portion of those SEZs has been the first property to take of and there has been an enormous amount of land speculation around the SEZs.
What impact will transport expansion projects have on inner-city development and the future of Thailand's real estate sector?
It will have a huge impact—today we have two MRT lines and the impact of those two lines alone has been massive. It has created pockets of development that we would not have had otherwise. Therefore, with the expansion of the MRT we can expect to see massive changes. We should see further clusters of commercial development springing up. There have been a lot of M&As going on and we expect many more alliances like that happening. Even going back just 10 years ago there were four or five significant developers who had a pretty low market share in the residential sector. Right now there are probably 10 to 15. The market has become so brand conscious that it is difficult for the smaller developers to sell properties in it. So even if the overall market does not grow, these large developers can keep taking more market share and continue to grow. The big guys are just getting bigger.
How have Colliers' business segments been performing?
Our positioning is most clearly on the advisory side of the business. We are market leaders in advisory services, and this business continues to be strong. Our typical clients are landlords, and we have some government clients that we do a lot of work for. We also assist property funds and real estate investment trusts (REITs) that need valuation services, as well as international institutions or investors looking to place money here. We see many more international investors, especially from China and Japan. We have many Japanese clients and a strong relationship with our Japanese office. They visit once a month now with clients. We want to maintain our market positioning. We also do a great deal of brokerage work. We do plenty of tenant representation work as well. Colliers is not the market leader for representing landlords; our position has been that we represent mainly tenants, such as multinational firms looking for office or industrial space. We also do some project sales, both inside and outside of Bangkok, which helps residential developers sell property.