Top 10 predictions for Myanmar property sector in 2018: Colliers

Yangon is expected to experience growth in the office market this year. Thiri Lu/The Myanmar Times

The year 2017 elicited mixed market opinions while this year is expected to experience growth in the office market and industrial market, a real estate research firm suggested.

Yangon, coming from a low supply base, remains in a nascent stage of property development, and that fluctuation in rates is a commonplace occurrence, according to Tony Picon, director of Colliers International Myanmar.

In fact, despite headwinds, we have seen continuous growth in the office market as rental levels become competitive. The year also ended with healthy occupancy rates for the retail and serviced apartment sectors.

"We predict this trend to continue in 2018 especially with the industrial market being more bullish.

“Speedy reforms and further economic liberalisation will be fundamental, eventually driving the real estate sector into new heights,” Mr Picon explained. 

Colliers International Myanmar has outlined their 10 predictions for Myanmar’s property sector for this calendar year.

1. Retail entertainment will become more prominent

The success of modern retail establishments will drive competitors to adopt more unique offerings. Other than the integration of entertainment features and family-oriented recreational activities, Colliers International recommends developers to capture a wider consumer base through tenancy-mix variation. For instance, by integrating health and wellness tenants such as fitness centres, spas, outpatient clinics and other healthcare-related services in their establishments.

2. Banks gaining more confidence with housing mortgages

More condominium developers will secure bank partnerships this year. Protective measures, such as buyer’s legal security under the new condominium rules, will entice banks to diversify their housing mortgage programs. Colliers suggests that banks should offer more reasonable mortgage terms and partner with lower-tier developments in addition to high-end projects.

3. Industrial sector as a star performer

Increasing labour costs in competing countries such as China, Vietnam and other ASEAN neighbours along with the lifting of US sanctions will prompt a return of the garment industry back to the country. Fast Moving Consumer Goods (FMCG) industry and logistics companies will take a fresh look at the country banking on its geographical and demographic potential. While we understand that infrastructure may remain inadequate in the near to medium term, we continually urge industrial developers to focus on improving land development as well as provisions for generators for redundancy purposes. 

4. Emergence of smaller serviced apartments for lease

With relatively reasonable rents along with basic but functional features, limited and lower-tier serviced apartments will gain further traction despite being smaller in scale. Growth in apartments dedicated purely for lease are likely, more so with the relative absence of competition from small condominium units for rent. Additionally, limited supply in the medium term provides a window of opportunity for many developers.

5. Downward correction on residential rental yields

Residential rents are seen to continually correct downwards. This will drive capital rates to settle within the high single digit range compared to the 18-22 percent recorded in the past three to four years. 

Yields will however remain competitive regionally. We advise investors to be cautious with their selection process and aim for products and locations with high rental potential.

6. Resurfacing interest in Mandalay city, the northern powerhouse

As the hub of the country’s heartland and the last royal capital, Mandalay is Myanmar’s northern powerhouse. With mixed-use development seen to be an attractive concept in Mandalay city, other developers are likely to jump on the bandwagon. Big-ticket projects may soon be revealed.

Colliers recommends developers to design satellite communities that offer an upgrade in terms of living quality. Products should be geared towards exclusive landed residences. This should be reinforced with a destination retail to create critical mass. 

7. Competitive office rental environment to persist

More tenants will upgrade their office environment, and relocation towards better office spaces will become more evident. The research firm predicts rents to remain competitive amid the decline in new supply this year. 

Further clarity in economic policies and quicker reforms will create an impetus for new market entrants as well as for business expansion. Colliers advises landlords to keep lease terms favourable as well as appropriate rental offerings in line with their building quality.

8. Interest towards basic grade apartments

Lower-tier but modern apartments and condominiums are likely to witness better sales performance. While construction delay for larger scale projects is problematic, buyers are likely to gain more confidence towards basic but modern developments, smaller in size and priced more reasonably. 

Full enactment of the condominium law may elicit demand this year but affordability will remain an issue. Colliers urges developers to be crucial with site selection - ideally in alternative and accessible development sites in the immediate outskirts of Yangon. With these areas of appropriately priced land, devising offerings for mid-tier satellite communities ought to be a viable strategy.

9. Preferences to skew towards modern upper-scale hotels

Modern upper-scale hotels to gain preference over its outdated counterparts; with features such as better quality amenities and facilities that enhance the overall experiential value having a greater appeal to guests. These features will also allow operators to widen their market outside business and leisure foreign travellers, and tap into the domestic market for functions, corporate seminars, special occasions, events etc.

10. Developers eye southern Myanmar for resort destinations

More developers will head to Myeik islands and explore commercial possibilities for resort and leisure developments. With more than 800 undeveloped pristine islands, the region is in fact a strong draw for luxury travellers. Infrastructure may initially be a challenge, and generators although costly will be necessary. Kawthaung will similarly be an attractive jump off point with hotels offering excursion trips to the nearby islands.