As with most new markets, there was a drastic under supply of all forms of real estate in Myanmar and following the opening-up of the Myanmar economy the demand spiked and supply was not of a good enough quality nor had the capacity to accommodate this demand. In reaction to this developers and conglomerates from Myanmar and abroad leapt at the opportunity to develop all kinds of real estate. Firstly, the condominium, hotel and office markets received vast sums of investment capital in the expectation that the demand spike would continue and even rise, especially post-2015 democratic elections and the removal of all economic sanctions on the country. Following a range of difficulties, demand did not reach the expected levels but supply went up and continues to be constructed all over the country. The focus was on real estate in Yangon and, to some extent, Mandalay and the market quickly became over-supplied with stock in these sectors and rental rates, room rates and sales prices plummeted over the next few years with condominium sales drying up completely, projects being abandoned and developers being forced to explore other options. They quickly turned their attention to retail and industrial sectors and the serviced apartment market which were all under-supplied in similar fashion. Without learning from their mistakes, developers rushed to take advantage of this opportunity and build these alternative sectors to the failing office, residential and hotel properties. The real estate market in Yangon very quickly became saturated with retail and serviced apartment stock, with industrial being the only sector with continued growth potential and consistent, or even increasing demand as the government passes legislation relaxing laws on foreign ownership and operation of retail and industrial sectors. Currently the market is going through a trough in the cycle having descended from the dizzying heights that it reached in 2014/15.
The office real estate market in Yangon has seen an improvement following the passing of the Companies Law and the relaxation of the restrictions on retail and industrial foreign ownership. However, an over-supply of office stock in 2016 put rental rates under continual downward pressure over the following years. This resulted in high levels of relocation activity from tenants looking to take advantage of the lower rents. Many tenants “moved up” from poor quality residential properties into new-build office towers and apartment blocks at affordable rental rates.
More recently the over-supply situation has been somewhat rectified as the government has eased restriction on the insurance and banking sectors which has encouraged big space occupiers to enter the market and soak up a large amount of Grade A office supply in Yangon. This has seen Grade A office stock fall significantly in 2019 and has allowed rental rates to stabilise into 2020.
Supply grew exponentially in 2015 which lead to the large over supply in 2016 that was previously mentioned. It is clear that the more steady supply of office stock in the years since have allowed occupancy rates to catch up to their current rate of 77%. The addition of Y complex and M Tower is due add 51,355 sqm of office space to the Yangon real estate market in 2020, however, delays due to COVID-19 disruptions could see part of this come online in 2021 instead. Supply is due to increase significantly once again in 2022 with the addition of Yoma Central. Without further liberalisation of business sector in Myanmar, this new supply will likely put pressure on occupancy rates and therefore rental rates.
Rental rates have fallen significantly from the heights of 2014/15. Between 2018 and 2019, average prime rental rates fell from US$ 35 to US$ 30 and SPS initially expected rents to bounce back to US$ 35 in 2020. This was due to the fact that large spaces in Grade A developments had increasingly been drying up. However, the impact of COVID-19, compiled with 2020 being an election year and seeing a significant increase in Grade A stock, will likely now see rental rates plateau at US$ 30 in 2020 and 2021. Although there is the possibility that rental rates will increase to US$ 35 once again in 2021, it is likely this will be short lived as the introduction of Yoma Central and roughly 80,000 sqm of prime office stock will apply further downward pressure on rental rates.
In 2019, Slade Property Services found that shopping mall occupancy was very high with many of the malls, such as Myanmar Plaza and Junction City, having a 100% occupancy rate. Between 2018-2019, the Ministry of Commerce permitted thirty-four foreign and twenty-seven joint venture retail and wholesale businesses to operate in Myanmar, which represented a steady increase in demand for retail spaces over recent years.
The tenant mix of malls has mostly been made up of local and international retailers, restaurants and entertainment facilities. By in large, most international retailers have managed to enter the market by forging, joint ventures, franchises and partnerships with local retail players. Although the formation of these partnerships may reduce profit margins for international retails, these local partners play an integral role in establishing a presence and distributing products.
Between 2022-2023, it is estimated that around 90,000 sqm of new retail space will be added to the market to meet the continually growing demand. New retail developments that are due for completion in 2020 include; M Terminal, Samanea and Gamone Pwint Wholesale Market. However, the outbreak of COVID-19 may have an impact on both the demand and construction of these future projects. When the pandemic reached Myanmar, it had a hugely negative impact on the country’s retailers, who were among the first and foremost to feel COVID-19’s repercussions. A massive reduction in footfall has meant retail tenants have managed to negotiate lower rents than in previous years, with average rents for retail units now sitting at around US$ 25 – 28 per sqm.
Prior to the COVID-19 pandemic, industry in Myanmar had been profiting from a cycle of robust economic growth, a more attractive environment for foreign investors and the further liberalization of regulatory reforms. Growth in the industrial sector has largely been fueled by low cost labour, an increase in domestic demand and enticing incentives within economic zones. As a result, the World Banks “Myanmar Economic Monitor December 2019” report stated that “the industrial sector grew by an estimated 6.4% in 2018/19, driven by rising investment in manufacturing. Manufacturing growth reached 8% in 2018/19,” which the Bank projected to be the fastest growing economy in ASEAN. Such growth has been supported by programs such as the Everything But Arms (EBA) scheme which has been implemented by the EU.
Furthermore, the World Bank report also suggested that the “industry sector is expected to grow at a faster pace in 2019/20 than 2018/19, with growth in manufacturing activities driven by foreign firms’ entry.” As such GDP growth in the industrial sector was anticipated to increase to 6.5% in 2019/20.
With that being said, Myanmar is scheduled to hold a general election in November 2020. With this event on the horizon, most businesses expected that 2020 would see relatively flat, if not a drop, in foreign direct investment. However, the early months of 2020 indicated that those assumptions may have been wrong. Inquiries on industrial land, applications for Myanmar Investment Commission Permits and assessments of local distribution partners all increased during the December to March period between 2018/19 and 2019/20. COVID-19 however quickly quelled that renewed interest in Myanmar with many of those inquiries deferred until the economic fallout of COVID-19 lifts.
Prior to the outbreak of COVID-19, residential real estate in Myanmar had already been going through a somewhat precarious period. In recent years, Myanmar’s residential market has descended significantly from the heights it reached in 2014/15. An undersupply of quality residential stock before 2014 caused developers to rush to meet demand. Condominiums in Yangon were among the first real estate assets that received investment following this spike in demand in 2014, as developers believed demand would rise even further with the relaxation of economic sanctions and transfer of government in 2015. However, these demand expectations were not realised but supply continued, and still continues, to rise across Myanmar regardless. With the focus largely on Yangon and Mandalay, these markets quickly became oversupplied with residential stock causing rental rates and sales prices to fall, with condominium sales particularly suffering. Condominium sales have further suffered as developers have been inclined to build a high quantity of large two- or three-bedroom units rather than studio and one-bedroom units. With these units being significantly larger than their regional counterparts, this has meant higher prices. The justifications that developers have had for these high prices include, high land prices, high interest rates at 11-13% and YCDC parking regulations. The YCDC parking regulations are particularly restrictive as they state that developments must have 1.2 parking spaces per unit. Dylan Wang, Investment Director at the Emerald Bay project, where 10% of units are one-bedroom units and sold out very quickly, told SPS that this regulation has played an integral role in discouraging the construction of studio or one-bedroom units as the additional parking is “expensive and not easy to sell”.
Once it had become clear that condominiums were not performing at the expected level, developers turned their attention to high-end serviced apartments and this sector also became oversupplied. With that being said, there is still a market for mid-range serviced apartments as this is a sector that has been largely untapped and increasingly appeals to Myanmar’s young and growing middle class.
Myanmar’s hotels and tourism sector has gone through somewhat of a turbulent time in recent years. With demand reaching astronomical heights in 2014/15 the sector looked set to grow exponentially in the years following. The expected growth has meant that developers rushed to build hotels across the country. The total number of hotel, motel and guesthouse rooms increased by around 129% between 2013 and 2019 from 34,834 to 79,855 keys. According to the Ministry of Hotels and Tourism (MoHT) this enormous amount of supply growth has largely been concentrated in just a few key locations. In 2019 Yangon, Mandalay and Nay Pyi Taw accounted for 51% of these rooms and a sizable 30% of total rooms were located in Yangon alone. However, this huge increase in supply was not met with the expected demand as Myanmar suffered a public relations crisis on the international stage and total arrival numbers fell by 38% between 2015 and 2016. The combination of these two factors has meant that in recent years Myanmar’s tourism sector has had to deal with the issue of massive oversupply of hotels.
Slowly but surely since 2016, the total number of arrivals has been increasing to a point in 2019 where total arrivals were just 7% less than the highest point in 2015. However, it should be noted that the demographic of these visitors has shifted significantly. Between 2018 and 2019 the number of Chinese visitors increased by 152%, which saw their share of total visitors increase from 8% to 17% in just one year. As Chinese visitors tend to have a very different spending pattern to that of Western tourists, who visited Myanmar in reduced numbers following 2016, the average daily expenditure of tourists had fallen from US$ 171 in 2015 to US$ 108 in 2019. This is likely due to the popularity of Chinese package holidays that have been dubbed ‘zero-dollar tourism’ and have widely been viewed to have little economic benefit for Myanmar.