Retail space in Bangkok is becoming more expensive according to a recent survey that focused on main shopping streets around the world.
The Cushman and Wakefield report ranked Bangkok 35th in order of the most expensive global retail locations, with the Sukhumvit/Rajaprasong areas reported as the most expensive at US$ 125.40 per sg ft per year. Bangkok was ranked 44th in last year’s same survey, indicating costs are rising.
The global retail landscape in Asia is evolving, the report noted, and the pace of change is fast. Retailers are having to rethink their strategies as traditional bricks-and-mortar meet the increasing accessibility and innovation from e-commerce.
Consumers are in charge, and as physical and virtual channels intertwine further, retailers need to consider their offerings across multiple channels, including click-and-collect, pop-up shops and beacons, for example, to enhance the consumer experience.
In Asia, some international retailers are setting up operations; others, however, are looking to limit exposure and are opting for the franchise route. This is particularly evident for first- time entrants.
The food & beverage (F&B) sector is active and there has been a number of new entrants. In contrast, luxury brands need to revisit their strategies as currency weaknesses will hit profits, shaking sentiment and thus leaving them exposed following aggressive expansion plans in the recent past.
Further, there are intra-regional differences to consider – such as decelerating growth in China, weakness in Japan and mixed signals from India.
Causeway Bay in Hong Kong maintained its position as the most expensive retail location in the Asi-Pacific region according to the report, and second in the global rankings after New York. However, downward pressure on rents is becoming increasingly evident on the back of weaker retail sales and the slowing in tourist arrivals.
Indeed, Causeway Bay fell by 12.0 percent over the year to June 2015, and Central, Tsim Sha Tsui and Mongkok all fell by between 11.9 percent and 13.9 percent, paving the way for a more tenant-friendly environment. In addition, the tariff reduction on certain fast moving consumer goods (FMCG) imposed by the Chinese Government to boost domestic Chinese consumption is impacting on demand.
From a positive angle, the lower rental levels will create opportunities for luxury brands and high street retailers to enter the market, such as Monica Vinader, Sotheby’s Wine, Claudie Pierlot, Rebecca Minkoff, Perrin Paris and Filson.
However, going forward, interest rate hikes and concerns over the property market will likely impact demand from 2016 and thus see retail sales growth decline.
The retail market in Bangkok has been seeing strong competition for space particularly along prime streets where supply is limited and the vacancy rate is below 5 percent. With an influx of retailers effectively on waiting lists for space, this is putting strong upward pressure on rents and positive growth is evident – all characteristics that are expected to continue over the next 12-18 months.
Along Rajprasong/Sukhumvit, positive rental growth was in the region of 15.2 percent over the twelve months to Q2 2015.
The F&B sector is seeing the strongest growth although requirements are being noted from the luxury sector and demand going forward will be driven by rising visitor numbers which will boost spending power. Last year saw the addition of new spaces in luxury shopping malls in the Bangkok Central Retail District which satisfied some of the pent up demand – by way of example was the opening of a Tiffany & Co store.
Despite new supply vacancy in this area is low and supporting positive growth in rents, which have risen to THB 3,800 per sqm per month, up from THB 3,300 per sqm per month in Q2 2014.
