Market Research THAILAND INDUSTRIAL ESTATE MARKET

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1 Market Research THAILAND INDUSTRIAL ESTATE MARKET THAILAND INDUSTRIAL ESTATE MARKET HIGHLIGHTS 4th quarter 2008

2 colliers international THAILAND The Quarterly Report Thailand industrial estate MARKET 4th Quarter 2008 INDUSTRIAL ESTATE MARKET HIGHLIGHTS Market Indicators SUPPLY DEMAND Price occupancy rate SUPPLY DEMAND rental rate occupancy rate Industrial estate Q Q1 2009F SME FACTORIES Q Q1 2009F Industrial-estate developers have scaled down their sales targets for industrial land plots in 2009 since many potential clients are postponing their investment decisions. The US financial crisis has already become global, and Thailand s political uncertainty continues. Both have worsened foreign direct investment prospects. Electronics, automobiles and parts, and ceramics would be among the most affected. The total supply of industrial land at the end of Q was 104,279 rai, an increase from 2007 of around 6,569 rai or 6.7%. The supply in the Eastern Seaboard area accounted for 69,635 rai, the highest of the five regions; the lowest supply is in the Northeastern area accounting for 4.03 rai only. New supply added in the last quarter of 2008 amounted to 2,189 rai, all in the Eastern Seaboard area. Many industrial-estate developers have cut their investment budgets in response to the global financial melt-down and domestic political unrest, preferring to focus on developing committed projects only. Thailand should continue to be a long-term growth engine for the automotive and petrochemical industries and experience growing consumer demand over the next few decades. This positive long-term potential has prompted developers to continue to add new supply, which could total approximately 25,468 rai. However, most of these plans have been delayed in the wake of the global economic and domestic political problems.. The cumulative take -up of industrial land plots as of the last quarter of 2008 was 80,800 rai. The highest cumulative take up in terms of area (rai) was in the Eastern Seaboard area, with approximately 50,213 rai, followed by the Central area with 28,666 rai. In 2008, industrial land plots in the Central area had the highest occupancy, averaging 93.8%, followed by the Northeastern area, with an average occupancy rate of 74.44%. The average SILPs (Serviced Industrial Land Plots) price in industrial estates mostly ranges between THB 3 million and THB 4 million. The highest price per rai is THB 7.5 million in the Eastern Seaboard area at Wellgrow Industrial Estate, which has an occupancy rate of 94% due to its convenient location and excellent facilities.

3 INDUSTRIAL ESTATE MARKET OVERVIEW Thailand can be considered the engine room for the Asean region, with many factories from all around the world choosing the country as a production base. Thailand s expanding role as an industrial goods exporter, particularly of automobiles and electronics, has brought prosperity to hundreds of thousands of workers. But global economic conditions changed dramatically in 2008 so industrial developers who are expanding the serviced industrial land plots (SILPs) face dimming prospects. Some industrial-estate developers have cut their investment budgets for the year by between THB million in response to the global financial meltdown and domestic political unrest. In the first half of 2008, industrial estates were a growth sector due to new tax cuts for the property business that directly benefited developers. While the domestic political situation is worrying investors, it is not as big a concern as the global economic slowdown. Nevertheless, many investors, including the key Japanese sector, are concerned about political stability in Thailand and its potential impact on the Government s implementation of economic policy. Thus, in the first six months of 2008, the Board of Investment (BOI) managed to attract only THB billion worth of investment from 640 projects. This figure was 11% lower than in the same period in 2007, or only 30% of the full-year target. As a result, the BOI plans additional tax exemptions for machinery imports by companies approved for regional operating headquarters (ROH) incentives. The ROH programme offers customs and currency, plus a 10% corporate tax, onethird the normal rate. Investments planned in upstream steel, petrochemicals, energy, processed food and electronics were expected to result in a better performance in the second half of But increases economic and political gloom, climaxing in the airport closure, affected the industrial market fundamentals, especially confidence among international clients. Thus, many land-purchase negotiations were frozen. In the second half of 2008, many clients from the automotive industry reviewed their decisions to establish manufacturing plants. Most electronics companies experienced lower sales in the Q4 and into Many companies will be reducing staff levels; however, in the second half of 2009, there may be some rehiring if efforts to revive the markets begin to bear fruit. 2 Colliers International

4 Supply Trends Our report primarily focuses on land plots (sometimes referred to as SILPs, or Serviced Industrial Land Plots) for which developers of industrial estates have applied for land allotment licences and which have been approved by the Industrial Estates Authority of Thailand (IEAT). Industrial Estate Locations Colliers has divided the industrial estate market into five locations, as follows: Eastern Seaboard Area: This area covers the eastern part of Thailand, from Chacheongsao, Chonburi and Rayong to Prachinburi. The Eastern Seaboard area is located near Bangkok, Suvarnabhumi Airport and Laem Chabang Deep Sea Port. This strongly benefits projects in the Eastern Seaboard area in terms of logistics and reduces transportation costs. Table 1: Supply added in the Eastern Seaboard area in 2008 Industrial Estate Area (Rai) Amata City Industrial Estate 378 Amata Nakorn Industrial Estate 1,315 Asia Industrial Estate 17 Hemaraj Chonburi Industrial Estate 432 Hemaraj Eastern Industrial Estate 484 Hemaraj Eastern Seaboard Industrial Estate 2,469 Pinthong Industrial Estate 591 Pinthong Industrial Estate (Laemchabang) 53 TFD Industrial Estate 273 Total 6,012 Source : Colliers International Thailand Research Central Area: This area covers Bangkok and the surrounding provinces of Pathumthani, Ayuthaya, Saraburi, Samut Sakon, Samut Songkram, Samut Prakarn, Singhburi and Nakorn Pathom. Table 2 : Supply added in the Central area in 2008 Industrial Estate Area (Rai) Hi - Tech Industrial Estate 22 Sinsakorn Industrial Estate 535 Total 557 Source : Colliers International Thailand Research Colliers International 3

5 Northern Area: This area covers the northern part of Thailand. The industrial estates in this area are at Pichit and Lamphun. No new supply was added in this area in Northeastern Area: The area covers the Northeastern part of Thailand, The only industrial estate in this area is at Khon Kaen. No new supply was added in this area in The Ministry of Industry plans to close the industrial park in Khon Kaen to cut the burden on the IEAT. Khon Kaen s industrial estate, on only 4 rai of land, has no customers. Southern Seaboard Area: This area covers the southern part of Thailand, focusing on four provinces with potential, namely Surat Thani, Nakorn Si Thammarat, Chumpon and Pattani. A steel industrial estate was part of the Southern Seaboard project. A site for the Southern Seaboard industrial development is expected to be selected within this year and the development of a major industrial area in the South is expected to take the pressure off the heavily industrialised Eastern Seaboard area. Potential industries on the new site include high-grade steel and furnace operations, petrochemicals and energy ventures. Total Current Supply The supply of serviced industrial land plots has increased every year. A high increase of 10.4% was seen in In 2008, the total supply at the end of Q4 was 104,279 rai, an increase from 2007 of 6,569 rai or 6.7%. Figure 1 : Supply of industrial land plots, Source : Industrial Estate Authority of Thailand, Board of Investment (BOI) and Colliers International Thailand Research The Eastern Seaboard area accounts for 69,635 rai of the total supply, the highest of the five regions; the lowest supply is in the Northeastern area accounting for 4.03 rai only. The large supply in the Eastern Seaboard is mainly in the part generous BOI (investment promotion zone 3), which include the longest term of corporate tax exemption and zero import duty on raw materials used in manufacturing export products. In addition to BOI investment and promotion zone, location is also a factor determining supply. The Eastern Seaboard area is well-located near Bangkok, Suvarnabhumi Airport and Laem Chabang and Map Ta Phut Deep Sea Ports. This strongly benefits projects in this area in terms of logistics and reduces transportation costs. Expanding production lines in the automobile industry has also benefited the Eastern Seaboard. The Central area, which accounts for the second-largest supply of 30,560 rai, also benefits from both Zone 2 and Zone 3 and proximity to key road, rail, air and port infrastructure. However, the availability of Zone 3 in the Northern and other areas has not led to the hoped-for relocation of industry to these areas due to the greater distance to key infrastructure and more limited labour pool, One exception appears to be Lamphun Industrial Estate which is facing a shortage of supply as more companies decide to expand there. New supply of 100 rai is expected to be added at Ban Thi, Lamphun. 4 Colliers International

6 Figure 2 : Supply of industrial land plots by location, Q Source : Industrial Estate Authority of Thailand, Board of Investment (BOI) and Colliers International Thailand Research New supply added in 2008 was approximately 6,569 rai, of which some 91.5% was in the Eastern Seaboard area (6,012 rai), of which 3,385 rai was in estates owned by Hemaraj Land and Development and another 1,693 rai by Amata Corporation PCL. The only other area that added new supply in the year was the Central area with approximately 557 rai. Figure 3 : New supply of industrial land plots by location, 2008 Source : Industrial Estate Authority of Thailand and Colliers International Thailand Research Although new industrial land plots approved by the IEAT Board in the last quarter of 2008 stood at 2,189 rai, all in the Eastern Seaboard Area, most of this has yet to come on line due to cutbacks in investment budgets by most industrial-estate developers in response to the global financial melt-down and domestic political unrest. They have decided to develop precommitted projects in order to minimize the impact of the depressed economic climate and political uncertainty. Colliers International 5

7 Figure 4 : New supply of industrial land plots by location, Q Source : Industrial Estate Authority of Thailand and Colliers International Thailand Research Future Supply Thailand should continue to be a long-term growth engine for the automotive and petrochemical industries and experience growth in consumer demand over the next few decades. Although short-term expansion of industrial estates has been mostly put on hold, plans have been announced for substantial expansion in the longer term, which could be reactivated once market sentiment improves. The total planned expansions total approximately 25,468 rai. The majority of this will be added in the Eastern Seaboard area, with approximately 15,198 rai. The long delayed Southern Seaboard project is likely to be located in Nakhon Si Thammarat after the IEAT chose a site there from four candidates. Other provinces on the final list included Krabi, Phangnga and Phuket. The essential infrastructure to be built includes rail, deep-sea ports, roads, water, power and other utilities. Thus, supply planned in the Southern Seaboard area is approximately 6,404 rai. In the Central area some 3,366 rai is planned and 500 rai in the Northeastern area. In the current economic climate, industrial estate developers are mostly pursuing only projects with a high level of pre-commitment from customers. Table 3 : Future supply of industrial land plots Developer Province Area (Rai) Investment amount (THB Million) Amata Corporation PCL Chonburi & Rayong 6,000 2,000 CP Land Co.,Ltd. Rayong 3,000 6,500 Wellgrow Industries Co.,Ltd. Chachoengsao 100 NA Thai Factory Development PCL Chachoengsao 500 1,422 Saha Group I.P. Prachinburi 2,000 NA Hemaraj Land and Development PCL Rayong Phase I - 2,000 Phase II NA Phanthongkasem Chonburi VRM Idustrial Estate Ratchaburi 1, Rojana (develop existing land) Ayuthaya 1, Rojana (buy new land) Ayuthaya ICT Industrial Estate Khon Kaen Southern Seaboard Industrial Estate Nakhon Si Thammarat 6,404 4,218 Total 25,468 16,555 Source : Colliers International Thailand; Plans announced by developers 6 Colliers International

8 The following graph shows the distribution of industrial land should all of these plans materialise. Figure 5 : Current and future supply of industrial land plots by location Source : Colliers International Thailand Research DEMAND Trends The cumulative take up of industrial land plots as at the end of 2008 was 80,800 rai. The highest cumulative take up in terms of area (rai) was in the Eastern Seaboard area, with approximately 50,213 rai, followed by the Central area, with 28,666 rai. Figure 6 : Supply and demand of industrial land plots, Q Source : Industrial Estate Authority of Thailand, Board of Investment (BOI) and Colliers International Thailand Research Colliers International 7

9 Table 4 : Selected sales transactions of industrial land plots, 2008 Industrial Estate Company Name/Business Area (rai) Transaction Period Amata Nakorn Industrial Estate Mitsubishi Heavy Industries (Thailand) Co., Ltd. 90 Q Sinsakhon Printing City & Industrial Estate VPP Progressive Co., Ltd. 3,000 Q Ratchaburi Industrial Estate GS Energy Co., Ltd. 62 Q Amata Nakorn Industrial Estate Tai Mou Precision Industrial Co., Ltd. NA Q Rojana Industrial Park NA 260 Q1& Hemaraj Eastern Seaboard Industrial Estate Thai Suzuki Motor Co., Ltd. 412 Q Amata Nakorn Industrial Estate NA 218 Q1& Plaeng Yao (Gateway City) Industrial Estate NA 10 Q Amata Nakorn Industrial Estate CABTEC Thai Co., Ltd. 19 Q Amata City Industrial Estate Sammitr Motor Manufacturing Plc. 100 Q Eastern Seaboard Industrial Estate BASF Chemical (Thailand) Co., Ltd. NA Q Navanakorn Industrial Promotion Zone Nakorn Ratchasrima Honda Automobile (Thailand) Co., Ltd. 90 Jul-08 Eastern Seaboard Industrial Estate Danieli Far East Co., Ltd. 121 Jul-08 Outside industrial Estate - Lamphun Manufacturing Metal Business Hemaraj Eastern Seaboard Industrial Estate Fuserashi Co., Ltd. 21 Jul-08 SIL Industrial Land Thai Rayong Plc. 20 Apr-08 Eastern Seaboard Industrial Estate Mungmaichromium Co., Ltd. 20 Apr-08 Hemaraj Eastern Industrial Estate PTT Asahi Chemical Co., Ltd. 120 NA Hemaraj Eastern Seaboard Industrial Estate Ushin (Thailand) Co., Ltd Nov. 08 Amata City Industrial Estate BorgWarner Turbo and Emission Systems (Thailand) Co., Ltd. 20 Oct. 08 Navanakorn Industrial Promotion Zone (Pathumthani) Honchuan (Thailand) Co., Ltd. 9 Q4 08 Source : Press reports and Colliers International Thailand Research Occupancy Rates and Prices Due to the high increase in supply in every area, coupled with the squeeze in investment plans from auto-parts and export manufacturers, occupancy rates declined in 2008 in every area, except the Central area due to limited land for expansion. The automotive industry is likely to remain depressed for at least another two years. This will directly effect industrial estates in the Eastern Seaboard area, an area which has been called the Detroit of the East. 8 Colliers International

10 In 2008, the highest occupancy rate was in the Central area, followed by the Northeastern area, although based on very low supply base. The Eastern Seaboard area, which accounts for the largest share of supply ranked third, with an average of 72.11%. Within the Central area, Bangkok and Samut Prakarn have the highest occupancy rate, at 98% and 99%, respectively. Our study has shown that within the Eastern Seaboard, Rayong commanded the lowest occupancy rate, with an average of 68%, while Chonburi commanded the highest occupancy rate of 80%. Figure 7 : Average occupancy rate of industrial land plots by location, 2008 Source : Industrial Estate Authority of Thailand, Board of Investment (BOI) and Colliers International Thailand Research The median price for industrial land plots in industrial estates tends to fall in a range between THB 3 million and THB 4 million. The highest price per rai is THB 7.5 million in the Eastern Seaboard area at Wellgrow Industrial Estate, which has an occupancy rate of 94% due to its convenient location and excellent facilities, while the highest price in the Northeastern area is only THB 1.7 million, the lowest of the five regions. The Eastern Seaboard and Central areas have a wide range of prices, from THB 600,000 to THB 7.5 million per rai due to the large number of suppliers. The reduction in available land and relatively strong demand in the Central area will push prices up in the future, although the current economic situation will prevent such increases in the near term. Around ten major companies in the Eastern Seaboard area acquired around 1,392 rai in the first half of 2008, due mainly to the expansion of eco car projects. However, there is still a large amount of land available in the Eastern Seaboard area (19,422 rai), which will help keep land prices in check in the short term, although if demand returns to a strong growth path, prices will likely increase in the long term. Colliers International 9

11 Figure 8 : Sales prices of industrial land plots in selected provinces, Q Source : Industrial Estate Authority of Thailand, Board of Investment (BOI) and Colliers International Thailand Research The price of SILPs at Hemaraj Industrial Estate increased by 5%, from THB 2 million per rai to THB 2.1 million per rai at the beginning of July The average price at Amata City Rayong stands at THB 2.3 million per rai, while prices at Amata Nakorn increased to THB 4.5 million per rai from just THB 3.5 million per rai. Outlook: Industrial-estate developers have scaled down their land-sales targets for 2009 since many potential clients are postponing investment decisions. The US financial crisis has already become global, and Thailand s political uncertainty continues. Both have worsened the climate and prospects for foreign direct investment. Electronics, automobiles and parts, and ceramics are likely to be particularly adversely affected, while increased unemployment rates will result as projects are scrapped. However, the situation may be better than projected if the Government successfully implements an effective assistance programme soon and business operators can adapt to the slowdown. As exports decline, Government efforts are being geared to some extent to increasing domestic consumption and could throw a lifeline to Thailand s crucial automotive industry, which has responded to the global downturn with production cuts that could cause massive layoffs. Confidence is very important to attract foreign investment. It will take time to win back foreign investors confidence and to encourage potential investors to consider Thailand as an attractive investment destination, especially in relation to rival countries such as Vietnam or even Malaysia. Another increasingly important factor in maintaining investors confidence and persuading foreign investors to invest in Thailand s industrial estates is the quality of environmental management and their proven commitment to promoting the quality of life of the surrounding communities. 10 Colliers International

12 SME FACTORY MARKET HIGHLIGHTS The global economic slowdown, inflationary pressures and the credit crunch will directly affect demand for small and mediumsized enterprise (SME) factories due to their focus on producing goods which are particularly sensitive to trends in consumer consumption. Thus, companies will delay expansion plans and become increasingly cost conscious during the economic downturn. Unlike the SILPs market, the SME factory market is dominated by companies renting premises. As a result, there is more mobility and the sector may experience some downward pressure on rentals and increasing vacancy rates as the market weakens, especially if Japanese investment delines as drastically as many are predicting. The total supply of SME factories, as of Q was approximately 1,234,167 sq m. TICON is the largest developer of SME factories, accounting for 418,350 sq m, followed by TFUND and Hemaraj, accounting for 384,350 sq m and 135,266 sq m, respectively. Another 111 factories are planned to come onstream in 2009 with a total area of approximately 247,744 sq m, of which 82 factories, representing an area of 190,175 sq m, will be added by TICON, and another 11 factories with the approximate area of 20,000 sq m will be added by Amata. Hemaraj will add approximately 23,069 sq m in 8 factories in The average occupancy rate of SME factories is 82.79%. SME FACTORY MARKET OVERVIEW Small and medium-sized enterprise (SME) factories are standard factories for international companies who do not particularly want to develop their own factories, or even to own them in order to reduce their operation costs and risks related to any possible uncertainties. SME factories are generally standard units, pre-built and offered for rent. SME factories are places either to manufacture goods or supervise machines processing one product into another or for the storage of goods. SME factories are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually large plain buildings in industrial areas of cities and towns. The developer may offer to both rent and sell SME factories. Colliers International 11

13 Supply Trends The total supply of SME factories, as of Q was approximately 1,234,167 sq m in 610 factories. TICON had the largest market share, accounting for 418,350 sq m in 153 factories, followed by TFUND. TFUND and TIF1 have expanded their portfolios by acquiring freehold industrial properties from TICON and TFD respectively. TFUND bought 38 SME factories with around 95,968 sq m of space from TICON, so in the second half of Figure 9 : Supply of SME factories for rent by developer, Q Source : Colliers International Thailand Research Future Supply Another 111 factories with an area of approximately 247,744 sq m are expected to be added within 2010, of which 82 factories with 190,175 sq m will be added by TICON, and another 11 factories with 20,000 sq m by Amata. Hemaraj plans to add approximately 23,069 sq m in 8 factories in Figure 10 : Current and planned supply of SME factories by developer, Source : Colliers International Thailand Research 12 Colliers International

14 Table 5 : Future new supply of SME factories, F Developer No. of factories Area (sq m) TICON ,175 TFD 10 14,500 HEMARAJ 8 23,069 AMATA 11 20,000 Total ,744 Source : Colliers International Thailand Research Demand Trends, Occupancy and Rental Rates As small manufacturers tend to rent SME factories rather than buy industrial land plots and build their own factories, thus we should see demand trends in this sector differ from the industrial land plot sector. Although there is continued demand for smaller factories in Thailand, the fact that rental agreements give occupiers greater flexibility to either push for lower rents or relocate means that there is some risk in this market when the overall economy weakens. Nevertheless, as at the end of 2008 average occupancy rates of SME factories was at a relatively high level of 82.79% and pricing remained reasonably constant Table 6 : Average occupancy rates of SME factories, Q Developer No. of factories Total area (sq m) LeaseABLE area (sq m) Occupancy rate (%) TICON , , % TFD ,221 63, % TFUND , , % TIF ,578 43, % Pinthong 55 73,949 57, % Hemaraj ,266 99, % Amata 53 62,453 46, % Total 610 1,234,167 1,021, % Source : Colliers International Thailand Research The rental rate of SME factories were in the range of THB per square metre per month. (exclude Pinthong) The rental rate of Pinthong was lowest, in the range of THB per square metre per month. Table 7 : Average rental rates of SME factories, Q Developer Rental rate (THB / sq m / month) TIF TFUND PINTHONG TFD TICON HEMARAJ AMATA Source : Colliers International Thailand Research Colliers International 13

15 The Quarterly Report 4th Quarter 2008 Bangkok Apartment Market Outlook: The global economic slowdown, inflationary pressures and the credit crunch will directly affect the demand for SME factories due to their traditional use being to produce goods for export that are sensitive to trends in consumer consumption. Thus, companies will delay expansion plans as they become increasingly cost conscious during the economic downturn, while others may negotiate rental rates or opt not to continue lease agreements as they come up for renewal. However, the economic downturn may have some positive effect on this sector of the market because manufacturers may opt to downsize investment into such more temporary facilities rather than investment in larger owneroccupied build-to-suit facilities until they have a clearer view on the direction of the market. APPENDIX: 293 offices in 61 countries on 6 continents USA 99 Canada 19 Latin America 18 Asia Pacific 62 EMEA 95 US$ 2 billion in annual revenue 868 million square feet under management 11,048 Professionals Contact information THAILAND: Patima Jeerapaet Managing Director Colliers International 17/F Ploenchit Center Klongtoey Bangkok Tel: Fax: Risinee Sarikaputra Director Research INDUSTRIAL ESTATE ZONING AND PRIVILEGES Granting Tax and Duty Privileges Import duty on machinery Industrial Estate 50% reduction Zone 1 Zone 2 Zone 3 (36 Provinces) Zone 3 ( 22 Provinces) Outside Industrial Estate 50% reduction Industrial Estate Outside Industrial Estate 50% reduction Industrial Estate Outside Industrial Estate Industrial Estate Outside Industrial Estate Corporate Income Tax 3 yearss - 7 years 3 years 8 years 8 years 8 years 8 years Import duty on raw or essential materials for export for 1 year for 1 year for 1 year for 1 year Double deduction from transportation % reduction in corporate income tax for 5 years The project s infrastructure cost is deducted Duty on raw or essential materials used for domestic sales for 5 years 75% reduction for 5 years for 5 years for 5 years 75% reduction for 5 years for 5 years - This report and other research materials may be found on our website at Questions related to information herein should be directed to the Research Department at the number indicated above. This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. Colliers International is a worldwide affiliation of independently owned and operated companies. 14 Colliers International

16 This report and other research materials may be found on our website at Questions related to information herein should be directed to the Research Department at the number indicated above. This document has been prepared by Colliers International for advertising and general information only. Colliers International makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability. Any interested party should undertake their own inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. Colliers International is a worldwide affiliation of independently owned and operated companies.