Thailand’s retail market has faced considerable challenges during the first quarter of 2014. These have included a drop in private consumption and consumer confidence, as well as a 3.4 percent fall in tourist arrivals year-on-year.
In many cases, the effects of the slowing economy and political instability will be temporary if the political crisis is resolved and economic growth strengthens, but there are also significant factors that will affect the long-term growth of the retail property sector in Thailand.
There will be continued growth of prime retail developments in Central Bangkok, driven by local and, more importantly, tourist demand.
The opening of the 70,000 sqm Central Embassy (pictured) earlier this month along with other new retail developments will confirm the position of the Phloenchit and Sukhumvit Road strip as a leading regional retail destination.
Central Embassy will have eight floors of designer brands, boutiques, exclusive restaurants and a Park Hyatt hotel above the development. Another major development in the pipeline is the 50,000 sqm. EmQuartier, scheduled to open alongside the existing Emporium at the end of the year.
The area of Phloenchit and Sukhumvit between MBK and the Emporium already contains more than 15 major shopping centres with a total lettable area of 750,000 sqm. This is 15 percent of the total shopping centre and department store supply in Bangkok, according to CBRE Research.
The new developments including Central Embassy, EmQuartier and EmSphere will add another 120,000 sqm of supply.
The new centres are attracting more international brands and existing brands are adding more outlets. Some of the luxury brands that will open in Central Embassy reportedly include Chanel, Gucci, Hermes, Tom Ford and Miu Miu.
“The combination of a large concentration of modern shopping centres with a wide range of international brands will ensure the position of Bangkok and, in particular, Sukhumvit and Phloenchit, as a leading regional retail destination,” said Jariya Thumtrongkitkul who runs CBRE’s retail services team.
CBRE hopes that in the future the government will remove the 30 percent duty on luxury goods. Such a step would make Thailand even more competitive and encourage more international brands to establish outlets in Bangkok.
New shopping centre developments are in the pipeline outside the city centre in Bangkok as well. A number of new locations have emerged with growing populations of middle-class residents. The growth of these locations in many cases has been driven by new infrastructure.
Central West Gate, a new Central Pattana (CPN) development in Bang Yai, with a gross retail floor area of 500,000 sqm on a 16 hectare site, is one example of a development driven by new infrastructure. In this case, the strategic location has been created by the combination of the Western Outer Ring road and the Purple Line mass-transit route currently under construction.
There are also examples of infill projects where developers believe there is potential for smaller-scale malls. An example of this is CPN’s recently announced Central Festival East Ville next to the Ekamai-Ram Intra expressway with a gross retail area 135,000 sqm.
There will be a limit to how many more large scale shopping centres can be built in Bangkok before they start to cannibalise sales in existing centres. Improved mass-transit systems that reduce travel between locations diminishes the natural monopoly of a dominant player in a specific geographic location. Even so, there will be opportunities to build new centres if the existing retail stock is unattractive.
The Mall Group has announced it will proceed with a retail development on a 16 hectare site in Bang Na even though there is already significant existing retail supply in the area. This will present a challenge to existing shopping centres in the area, and there may not be sufficient demand for all to survive.
Large shopping centre development has been an oligopoly of three major groups – Central, The Mall Group and Siam Future – because they control the anchor tenants. Overall, this has limited most other developers to building neighbourhood centres.
Many landowners have wanted to generate rental income from their landholdings and neighbourhood centre development has been seen as an attractive option.
Retail property development is, however, challenging. There are few locations where neighbourhood centres are able to attract customers from 8am to 10pm seven days a week, and this is what is needed to allow tenants to make sufficient income to pay high rents.
CBRE has seen very mixed results from neighbourhood and community malls, with quite a few performing poorly. But it still sees opportunities for neighbourhood and community malls providing convenient shopping however there will be a limited number of locations with the right population mix of residents and workers that will allow sustained, successful performance. In any case, this segment will remain very competitive with few very successful centres.
One retail format that is in decline is the traditional shophouse. The modern retail trade is expanding and the traditional trade is declining. In many areas the shophouse is becoming obsolete, especially as Thailand has few “high street”-style retail locations with high pedestrian flow.
There will be sufficient demand for the best shopping centres in the city centre driven by tourist demand as well as residents, but the suburban market is approaching saturation in many areas.
A few locations are still under-serviced in terms of modern retail outlets and there will be opportunities where the current dominant shopping centre in a specific area is losing customers because of its age, design or tenant mix.
The retail property market will continue to evolve with different formats and a wide range of tenants. “Bricks and mortar” retailers in Thailand will also have to face the threat of e-commerce, which is changing the face of retail in many Western economies.
This article was written by James Pitchon, Executive Director – Head of CBRE Research and Consulting, Thailand, and was first published in The Bangkok Post. It is reproduced with kind permission of CBRE Thailand.