Intense competition from condominium developers sees just 154 new serviced apartments set for completion in Bangkok’s central business districts between now and the end of next year.
In its latest research report on the serviced apartment sector in Bangkok, Colliers International Thailand reported that 304 units were completed during the first nine months of 2015, and that the total serviced apartment supply in Bangkok now stands at approximately 18,730 units.
Serviced apartments have become a less interesting field of business, according to the real estate firm, after land price in the CBD areas dramatically increased during the past few years. High land prices are not suitable for serviced apartments or other types of rental projects, it said.
Many new serviced apartment projects completed in the past few years are located outside the CBD area, or on the small roads branching from the main roads. Most projects have less than 80 units, it said.
Most serviced apartments in Bangkok are located in the area along Sukhumvit (52 percent) but the firm noted that some new projects added to the market during the past few years were located in suburban areas.
Serviced apartments have been facing intense competition from condominiums and luxury apartments over the past few years. Many foreigners have moved from serviced apartments to condominiums in the same location due to lower rental prices with similar facilities. Therefore, not many new serviced apartments have been added to the market during the past few years – or will be in the future.
Colliers said the main target group of serviced apartments in Bangkok are expatriates who work in Bangkok. Approximately 81,000 expatriates applied for work permits in Bangkok as of September 2015, an increase of around 6,300 from the same period last year. That number is expected to grow in the future.
Although the number of expatriates living in Bangkok has grown every quarter, the average occupancy rates of serviced apartments in Bangkok has not dramatically grown. This is because many expatriates prefer to stay in condominiums or high-end and luxury apartments with lower rentals than serviced apartments in the same location.
Average rental rates in all locations continued to slightly increase during the past three quarters of 2015. due to positive signs on the political and economic fronts, although the economic overview has still not recovered enough to raise confidence substantially. Most serviced apartments are maintaining their rates to keep existing clients and to try to attract more new clients. Therefore, average rental rates did not change significantly during Q3 2015.
In its forecast for the sector, Colliers said land prices combined with a lot of competing condominium units in Bangkok are the major factors affecting serviced apartment development. This results in lower profits for operators.
Average rents and occupancy rates in 2015 will continue to increase, it predicted, however the increase may be only a few percentage points as most clients for serviced apartment projects are on long contracts.
Some developers who own leasehold plots of land in the city are planning to develop mixed-use projects that include serviced apartments, but these will probably not be started this year. Most serviced apartment projects in Bangkok are more focused on renting on a daily basis than monthly for the higher income from daily clients, even at similar occupancy rates.
