Location remains priority

Location remains priority for non-residential investment

Location remains the first priority that investors should consider before investing in non-residential property projects, suggested executives in the real-estate industry.

Vivat Sricharoenwong, vice-president of the Thailand Asset Management Association, said property investors should consider location first, followed by financial and management risks, as a better location would bring a higher yield.

For example, an office building in Soi Lung Suan in downtown Bangkok can command a monthly rent of 650-700 baht per square metre while a similar building outside the central business district (CBD) would charge less.

In yield terms, office buildings in the CBD would generate 8% per year while non-CBD ones earn 5-6%.

Wongphumi Vanasin, president and managing director of Pinnacle Hotel Group, said location was also a factor for hotel investment.

The second concern was building structure and hotel management team.

The tourism business has not been affected by the economic slowdown because people stressed out from work or business usually take leisure trips for relaxation, he noted.

However, risks in hotel investment include interest rates, supply and the political situation.

Charoen Nadpobsuk, general manager of SC Park Hotel, said currently there is an oversupply in the hotel business due to a rising number of serviced apartments competing for market share.

As a result, hotel agents are bargaining down the price with hotel operators.

Over the past 10 years, hotel room rates rose by less than 10% on average.

Currently, there are 500,000 hotel rooms in Thailand, excluding apartments, serviced apartments and condo-turnedhotel rooms. The average occupancy rate was 70%.

Thanin Nonnathee, president of the Bangkok Serviced Apartment Club, said that as of early 2008, there were a total of 10,685 serviced apartment rooms in Bangkok, with 1,500 added in 2007. About 65% of them are located along the BTS and Sukhumvit Road.

He suggested that investors study location, project feasibility and demand before investing in serviced apartments.

Compared to hotel investment, serviced apartments generated higher gross operating profits as hotels would need two staff members for a room but serviced apartments need up to one.

Ornranee Ratanakongsawat, a consultant with Panthip Court Serviced Residence, said the initial return rate of grade A serviced apartments in Phloen Chit, Silom and Sukhumvit Road was 12-15% and 10-13% for grade B.

On Phahon Yothin Road, the return on investment was 11-14% for grade A and 9% for grade B while on Ratchadaphisek Road it was 10% for grade A and 8-9% for grade B.

At the same time, the break-even period should not be longer than seven years for serviced-apartment investments, excluding land price, and 10-12 years including land price.

KANANA KATHARANGSIPORN