Vientiane Apartment for Lease Report H2 2018

Laos | Research Reports

Vientiane

APARTMENT FOR LEASE MARKET REPORT H2 2018

INCREASED SUPPLY IMPACTS THE MARKET Summary • • • • •

Supply surges by nearly 45% in 2018 Grade A units now dominate the apartment for lease market Rental rates fall due to supply outstripping demand Growing number of foreign businesses in Vientiane bodes well for future demand China setting the stage for future economic growth and apartment dynamics

Fig 1 – HISTORICAL SUPPLY OF APARTMENT FOR LEASE UNITS IN VIENTIANE 1000 900

Number of units

800 700 600 500 400 300 200 100 0 2012

2013

2014 Supply at start of year

Source: New Asia Property Research / Rentsbuy

2015

2016

Additional supply

2017

2018

Vientiane Apartment for Lease Market Report H2 2018

Definition Apartments for lease are singularly owned buildings that lease out residential space usually for long-term contracts of over one-month duration but also accommodate short stays. The levels of service and facilities provided vary.

Only some apartments could be considered fully serviced apartments where cleaning would be provided on a daily basis and would include a small restaurant in the premises plus swimming pool and gym. Apartments for lease are categorised as either grade A or B, with the latter usually having limited facilities and lower standard rooms. For the purposes of this report the term apartment refers to an apartment for lease.

SUPPLY INCREASES SIGNIFICANTLY IN 2018

The current decade has seen a growing number of apartments being constructed to cater to the growing demand from expats. Until 2018 most developments were small scale, offering grade B quality or small boutique grade A buildings. In 2018 the opening of Landmark Diplomatic Residences made a significant impact on overall supply with the apartment being the largest in Vientiane, overtaking the Somerset Serviced Residence. In 2018 supply increased by nearly 45% from 2017. As of the end of 2018 there are just over 500 grade A units representing around 58% of the total supply.

SISATTANAK DISTRICT REMAINS MAIN LOCATION FOR APARTMENTS

Sisattanak district is host to many of the embassies in Vientiane as well as NonGovernmental Organisations and companies located in villas. It is also the location of a number of educational establishments catering to expat children including the Vientiane International School. The area is very popular for higher income expats working in the city and so remains as the main focus for apartments with just over half of the current supply in 2018.

Fig 2 – PERCENTAGE OF SUPPLY OF UNITS IN VIENTIANE BY DISTRICT 3%

8%

15%

23%

51%

Chanthabuly

Sikhottabong

Xasathany

Xaysetha

Sisattanak

Source: New Asia Property Research / Rentsbuy

Sikhottabong district which contains nearly a quarter of the apartment units in the city is a growth area for business and residential purposes. Wattay International Airport is located in this district. The lion’s share of the units are of grade A. Chanthabury is the main commercial district comprising most of the banks and insurance headquarters and government ministries in Vientiane. Many of these are located in Lane Xang Avenue, the main thoroughfare in the city, which is part of Chanthabury. The district also contains most of the tourism and entertainment related facilities including the main riverfront area. Most apartments in this district have a small number of units and are usually of grade B quality. These cater for more single expats who wish to be closer to the social scene in Vientiane.

SUPPLY SOFTENING OCCUPANCY The addition of one large apartment building in 2018 has reduced occupancy rates as it takes time for absorption of the large influx of units due to the overall small number of expats living in Vientiane compared to other commercial capitals such as Bangkok and Ho Chi Minh City.

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Vientiane Apartment for Lease Market Report H2 2018 Fig 3 – OCCUPANY RATES FOR DISTRICTS IN VIENTIANE H2 2018 100% 80%

growing number of expats on lower housing budgets. With grade A apartments also competing for short stay hotel market and a growing number of condominium units available for rent the rental rates may begin to feel continued downward pressure in the next few years.

60% 40%

HOUSING ALTERNATIVES

20% 0% Sikhottabong

Sisattankak

Others

Source: New Asia Property Research / Rentsbuy

With the additional supply mostly occurring in Sisattanak district this has led to a reduction in occupancy rates. Over time it is expected that demand will continue to increase, and occupancy levels settle at a higher number.

Most apartments also offer daily rate and therefore compete with the hotel sector with many utilising short stay booking websites such as Agoda, Expedia and Airbnb. There is also a tendency not to apportion rooms for each type of stay, so rooms over the year may be used for both short and long stay purposes. Occupancy rates therefore include short stay as well as longer stays of one month and over.

As in most cities there are a wide range of accommodation options for expats depending on their housing budgets and family size. Villas remain popular with higher income expats especially with families but many prefer the convenience of a serviced apartment in a frontier market although electricity and water supply issues are rare nowadays in Vientiane.

Other expats on lower budgets will often stay in apartments above shophouses usually in the centre of the business and entertainment areas in Chanthabuly district. Some landlords are refurbishing and upgrading units with modern amenities in these locations to entice expats away from the apartments for lease in Sisattanak district. Some expats choose to stay in hotels especially if they are working mostly outside of the city such as in the mining sector but spend some time in the capital.

DEMAND DRIVERS INCREASING

RENTAL RATES DECREASE IN 2018

Fig 4 – AVERAGE MINIMUM AND MAXIMUM LONG STAY RENTAL PRICES PER MONTH

Grade B

Demand for apartments comes mainly from the business sector although Non-Governmental Organisations and educational establishments are also important drivers. Companies from Asia provide the most significant source of new companies setting up in Vientiane. Out of these China has by far the largest number of new set ups and this figure has been growing rapidly over the past few years.

Grade A USD 0

USD 500 USD 1,000 USD 1,500 USD 2,000

Maximum

Minimum

Source: New Asia Property Research / Rentsbuy

Long term stay rates dropped by around 20-30% from 2017 due to the sizable increase in supply in 2018. The limited number of grade B units is likely to lead to rates firming up due to the 3

Vientiane Apartment for Lease Market Report H2 2018 Fig 5 – NUMBER OF NEW COMPANIES REGISTERING IN VIENTIANE CAPITAL

Fig 6 – NUMBER OF NEW COMPANIES REGISTERING IN VIENTIANE CAPITAL

500 400

80

300

60

200

40

100 0 2014 China

2015

South Korea

2016

2017

Thailand

2018 Vietnam

Source: New Asia Property Research / Enterprise Registration and Management Department

Number of new companies

Number of new companies

600

setting up from these markets with a very significant increase in all countries in 2018.

20 0 2014

2015

2016

2017

Japan

South Korea

European Union

Australia

2018

USA / Canada

Source: New Asia Property Research / Enterprise Registration and Management Department

China’s growing interest in Laos, especially evident in the transport infrastructure development as part of the Belt and Road Initiative (BRI), is leading to more companies setting up in a wide range of sectors. Overall the proportion of Chinese staying in apartments is still small but the sheer number of companies is likely to lead to a growth in demand especially in the grade B category.

However other countries are also investing more into Laos especially its neighbours Vietnam and Thailand as well as South Korea. While South Koreans provide a strong source of demand for grade A apartments, the other countries in general create more demand for grade B offerings due to generally lower housing budgets.

POSITIVES FOR APARTMENT SECTOR IN VIENTIANE

According to serviced apartment operators in Vientiane the main long stay markets for grade A units are predominantly from Japan, South Korea, European Union, North America and Australia which is similar to trends in other Asian cities. During the past few years there has been a growing number of new companies

Once a mainstay of the apartment market, the mining sector has been in decline over the past few years as reserves are being depleted and companies seek to squeeze the last resources out of the ground by reducing costs including previously generous housing benefits for staff.

However other businesses have been growing such as in the energy sector with the development of more hydropower and also better distribution systems. The growing regional interconnectivity is impacting Laos with greater demand on its transport infrastructure leading to noteworthy projects especially the new railway line linking Yunnan in China down through northern Laos to Vientiane.

Our recent industrial report also highlighted the increase in manufacturing especially near Vientiane in its special/specific economic zones with many foreign companies setting up mostly for export purposes.

As a result of the growing economy and potential for further positive developments other companies in the consultancy field are setting up to provide services. All these changes bode well for the future demand for the apartment market in Vientiane.

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Vientiane Apartment for Lease Market Report H2 2018

THE FRONTIER MARKET SPECIALIST Myanmar - Laos - Bangladesh

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Tailor made research Development advisory Feasibility studies Market entry Valuation support Investment consultancy and brokerage Leasing management

NEW ASIA PROPERTY CONSULTANTS CO., LTD. 9th Floor, Amtel Tower Des Voeux Rd Central Central, Hong Kong Tony Picon Managing Director Email: tony.picon@newasiaproperty.com LinkedIn: https://www.linkedin.com/in/ajpicon

In cooperation with RentsBuy real estate agency in Laos

Phontan Road, Ban Phontan, Hom 1, House No.2, Unit 01, Saysetta District, Vientiane, Lao PDR Email: rentsbuy@gmail.com http://www.rentsbuy.com

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