Rents on hold to aid tenants

Normally, shopping-centre developers increase their rents by an average of 5 to 10 per cent per year, following the country's inflation rate, when demand for rental space is rising. This year, most operators have decided to hold or to cut their rents to help business tenants caught up in the economic downturn.

Pornarit Chounchaiyasit, chief executive of Infinity Mall, operator of Centrepoint @ CentralWorld, said his company had revised its rental prices when the number of visitors at the new Centrepoint fell below target levels.

The company had earlier set rents at Bt1,200 to Bt1,800 per square metre per month, to help the centre to develop. Now, the company is adjusting those prices following lower-than-targeted sales by its tenants.

"We'll reduce rents for our tenants in terms of percentages of sales. That will help them survive the downturn," Pornarit said. In some cases, Infinity Mall will assist them by arranging joint business to help them reduce their costs.

"We've tried to find a new business model to help our tenants. This will also help our business to survive this crisis, because our revenue may reach only Bt60 million this year, when our target was Bt100 million. Sixty per cent of this will be from rental fees and the rest from events," he said.

Nattakit Tangpoonsinthana, executive vice president for marketing of Central Pattana, the Central group's shopping complex operator, said his company would delay increases in rents in all of its shopping complexes this year for tenants having to renew their contracts.

"We want to help our customers to reduce their costs because their sales have fallen from the last quarter of 2008 to now," he said.

Normally the company would increase its rental price by 5 to 10 per cent, depending on the location and traffic at the shop. But this year the number of shoppers at the complexes has fallen significantly, by 5 to 10 per cent, he said.

Research by three international property agencies suggests that Bangkok's rental market will fall by 5 to 10 per cent this year because multinational firms have begun to slash spending as head office operations suffer under the impact of the global economic crisis. The number of foreign tourists has also fallen significantly further depressing the retail market.

Colliers International Thailand's managing director Patima Jeerapaet said demand for office space, serviced apartments and retail space had fallen significantly in the current quarter because US and European multinationals were beginning to suspend business expansion around the world, including that in Thailand.

Jones Lang LaSalle (Thailand)'s managing director Suphin Mechuchep said the global economic malaise had already begun to affect Thailand's property market, especially high-rise residential projects and commercial projects.

According to the company's research, rental fees for office space fell in the current quarter from an average of Bt616 per square metre per month for grade A office space to Bt600. Meanwhile, office space is expected to be in significant oversupply in Bangkok next year. New office buildings with a total of 200,000 square metres of floor space will be completed at the same time as the new government centre at Chaeng Wattana opens its doors with 400,000 square metres of office space, Suphin said.

Suphin predicted that rental fees for retail space would fall significantly next year because the number of shoppers - both domestic and foreign tourists - would decrease.

The managing director of international property agency CB Richard Ellis (Thailand), Aliwassa Pathna- dabutr, said her company's research showed that all property segments had fallen since the fourth quarter of last year, some of them significantly, others only slightly.

This was a sign that the property market could drop by 10 to 20 per cent in 2009, which would make it the worst tumble since the financial crisis in 1997.

Offices for rent and serviced apartments will feel a negative impact from multinational firms reducing office space and staff, and this will show up in lower occupancy rates in 2009, she said.

However, she believes Thailand's property market will recover in 2011, at the same time as the global economy recovers.

"We believe that this recovery cycle will be faster than that after the 1997 financial crisis because global leaders, including the US, the UK, Europe, Japan and China, have launched measures to solve the problem. Thailand's property developers and finance firms are also healthier, financially, than they were after the 1997 crisis," she said.