Central Bank of Thailand and APAC real estate: challenges and investment opportunities

A year ago, when we reviewed the post-pandemic real estate market, we expressed a cautious view on the pace of recovery for each sector.

According to CBRE's Asia-Pacific Commercial Real Estate Market Outlook for Mid-2023, the Asia-Pacific commercial real estate investment market is expected to remain challenging due to prolonged interest rate hikes, insufficient price adjustments and a slower-than-expected recovery in mainland China. CBRE has adjusted its full-year forecasts for commercial real estate investment volume in Asia-Pacific, predicting a 15% decline through early''recovery in the first half of 2024.

While market sentiment and activity levels vary, the hospitality sector in particular continues to benefit from improving sentiment. This interim report examines the trends driving the tourism and hospitality industries and provides an overview of the overall real estate market.

Despite concerns about the recovery timeframe for Bangkok's post-pandemic hospitality market, the recovery is fast. According to Smith Travel Research (STR), average revenue per room (RevPAR) and average room rate (ADR) have consistently exceeded 2019 levels in every quarter since travel restrictions to Thailand were lifted. Only occupancy levels''remains below 2019 levels. This is not surprising given the significant divergence in international tourist arrivals to Thailand - peaking at 39 million in 2019 and projected at 25 million this year. According to market sources, more than 75% of international arrivals come from Asian countries. Short-haul flights have played a key role in this recovery, while long-haul flights continue to lag behind pre-pandemic levels. Among the seven major nationalities visiting Thailand, most have returned in numbers above or in line with 2019 levels, with the exception of China, where arrivals this quarter are less than 37% of those in the same period in 2019. Ms. Chotika Tungsirisurp, Head of Research and''10% by 2025, bringing the total number above 86,000 and ensuring a dynamic and competitive market. In comparison to the regional market, the slow return of Chinese tourists continues to put pressure on growth. The recent recovery in room rates shows signs of stabilization, with international arrivals in key Asia-Pacific markets (excluding mainland China) accounting for around 71% of 2019 levels as of May 2023.

The second quarter of 2023 marks the third quarter following the lifting of all pandemic-related restrictions in Thailand, with each market sector recovering from its''s own speed. While some sectors such as hotels have recovered quickly, others have seen smoother growth as seen in the office market with a high volume of new supply. Overall, rental activity in the Asia Pacific office market is increasing, with existing and new companies preferring flexible office space with a focus on flexibility. International companies are leading the way in deciding on new space by taking advantage of favorable terms, while large domestic tenants are hesitant to relocate, perhaps due to a lack of specialized global or regional teams to ensure policy implementation. In Asia Pacific, the office leasing market could decline by up to 5%''and lower-end developments in Bangkok's downtown and suburbs. The lack of new projects in the central apartment market continues to be a major challenge for the sector, along with rising mortgage costs and declining purchasing power for short and medium term.

The recovery in the retail sector continues, with the Consumer Confidence Index (CCI) reaching a three-year high in June in Thailand. Retail owners are investing in existing and new locations, with more than 1 million square meters of net leasable area under construction, half of which will be completed by 2025. A recovery in consumer confidence and the return of international tourists has helped the sector regain confidence. However, the sector is still far from levels''before the pandemic. In Asia-Pacific, the retail sector is strengthening, with vacancies in key locations being filled gradually. Many markets expect a moderate recovery in rents, especially Hong Kong, Tokyo and Singapore.

The Thai industrial sector is experiencing an increase in demand for industrial plots, driven by the overseas expansion of Chinese manufacturers in mainland China and Taiwan. Ready-built industrial premises (RBF) and speculative construction are gaining popularity due to the lack of supply in the market. With the emergence of new developers in the logistics market, both domestic and in collaboration with overseas joint venture partners, the sector is becoming more competitive, especially in terms of