thailand industrial real estate report h1 2010

The Knowledge Reportc o l l i e R s i n T e R n aT i o n a l | T H a i l a n D

executive summaryThe first half of 2010 heralded the biggest increase in supply of Serviced Industrial Land Plots (SILPs) for thirteen years reflecting the underlying long term confidence in the manufacturing sector despite ongoing political unrest over the past four years.

Additional supply in H1 2010 was nearly 7,500 rais, up 6.8% from H2 2009. Overall take up of SILPs is now at just under 77%.

The industrial scene has picked up from the global economic downturn that afflicted the export base in 2009 and is set to motor for the rest of 2010. However worries still abound in regards to a double dip recession in its primary export markets due to budget cutbacks from governments.

The Map Ta Phut situation remains unresolved although progress has been made. The ongoing suspension of around 46 projects continues to dampen sentiment.

MaRKeT inDicaToRs

H2 2009 - H1 2010

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The Knowledge Report | 1st Half | 2010 | Industrial Estate Market

Colliers International Thailand has divided the industrial estate market into five main zones in Thailand. These are as follows.

Eastern Seaboard area – This represents the industrial powerhouse due to its location surrounding the main contain-er port in Thailand, Laem Chabang and its proximity to the Bangkok metropolis. Further growth has come about due to suppliers clustering around large manufacturers.

North Eastern area – The remoteness of this area and poor transportation means that the area is a bit player in the industrial scene. The border with Cambodia and Laos (leading to Vietnam) could provide limited potential for the future.

Northern area – Limited industrial activity takes place here due to its remote location and is predominantly an agricultural area with a difficult topography for industrial development. The

proximity to China could show greater promise with the ever increasing trade between the two countries.

Central Area – Another key industrial area due to its proximity to Bangkok.

Southern Seaboard area – An under developed industrial area catering mainly to the Malaysian market with halal produce as well as heavy industrial projects based on oil.

This report is concerned predominantly with SILPs but it must be stated that a considerable number of stand alone factories exist outside of the industrial estates.

The total supply of SILPs increased from 110,500 to about 118,000 rais in H1 2010. This increase occurred in the Central area and the dominant Eastern Seaboard area. The year 1996 heralded the highest increase of SILPs, but the Asian Financial

Crisis put an end this surge and growth in supply was limited until 2009 with a robust increase despite the global economic downturn. Growth for the first half of 2010 has even outstripped the whole of 2009.

Source : Colliers International Thailand Research

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The total supply from the beginning of the first half of 2010 was around 118,000 rais. The supply in Eastern Seaboard area domi-nates the Thai market, accounting for nearly two-thirds of total

supply. The Southern Seaboard area has nearly 600 rais which is the lowest supply with just over 0.5% of the total market.

The new supply added in H1 2010 was just under 7,500 rais from only two regions; 56% from Central area and 44% for the

Eastern Seaboard, further consolidating the dominance of these two areas

Source: Industrial Estate Authority of Thailand, Board of Investment (BOI) and Colliers International Thailand Research

Source: Industrial Estate Authority of Thailand, Board of Investment (BOI) and Colliers International Thailand Research


fUTURe sUPPlY

More than 6,000 rais are scheduled to be completed in the second half of 2010 and almost 10,000 rais in 2011

Future supply of approximately 6,200 rais are scheduled to be completed in H2 2010 with 11.5% from the total located in the Northern area and 88.5% located in the Eastern Seaboard area.

Nearly 10,000 rais are scheduled to be completed in 2011 in which 50% are to be located in the Southern Seaboard area, 36% in Central area and 14% located in the Eastern Seaboard area





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TaKe UP bY Zone, DURing fiRsT Half 2008 – fiRsT Half 2010

The global economic impact had little effect on take up except for the dramatic fall in the North Eastern area. This was due to a number of companies either closing their doors or merging operations in the Suranee Industrial Zone. With such limited supply of SILP land, any significant location activity can have

a marked increase on the take up rates. It is noticeable that the main suppliers of industrial land also have the highest take up rates. So even with such limited supply the minor industrial areas still struggle to absorb such a small amount of area available.



Source : Board of Investment (BOI) and Colliers International Thailand Research

foReign DiRecT invesTMenT PeR Half YeaR

The global economic downturn severely curtailed foreign invest-ment into Thailand not helped by the airport blockade at the end of 2008 and rioting in April 2009. However FDI has started to return to the country as the main investor countries began to recover and capital began to flow once again.

FDI for H1 2010 still falls behind the 2006-8 period due to the concerns regarding sustained global growth as well as domestic issues. The rioting in May 2010 had little direct impact on the

industrial base but the subsequent curfew affected logistics which can cause undue strain on the supply chain. Since the events of May mixed signals have been sent from investors regarding the current investment situation in Thailand and prolonged political uncertainty coupled with the impasse over Map Ta Phut could continue to keep FDI below par.

DeManD DRiveRs foReign DiRecT invesTMenT (fDi)



The Map Ta Phut Industrial Estate is located in Rayong province and gave birth to the petrochemical industry in the 1980’s. The estate contains a significant amount of heavy industry and many pollution indicators have shown the area to be harmful to the health of residents who moved to the Map Ta Phut immediate area. In 2007 a new constitution was proclaimed and Section 67 included a provision in regards to the environment as follows:

Section 67“Any project or activity which may seriously affect to the community in quality of the environment, natural resources, and health shall not be permitted, unless its impacts on the qual-ity of the environment and health condition of people in the community have been studied and evaluated; and procedure on public hearing from the people and those affected, including from an independent organization, consisting of representatives from private environmental and health organizations and from higher education institutions providing studies in the environ-mental, natural resources, and health field, have been obtained prior to the operation of such project or activity.”

In 2009 a non government organisation, along with local residents, sued a large number of projects in the estate for not complying with the constitution. In September the Central Administrative Court suspended construction and operation of 76 projects, including a large number from PTT and Siam Cement Group and involving an investment ranging between 250-300 billion baht and around 37,000 jobs. Many multina-tional companies have also been affected. At issue was not the need to have health and environmental impact assessments as there was broad consensus that something had to be done; however since the new constitution came into effect no provisions have been made enabling for a framework and relevant

bodies to administer this process of impact assessments, public hearings and the setting up of independent organizations.

In December 2009 the court upheld its decision but allowed 11 projects to go ahead as they were approved prior to the constitution. The Prime Minister set up a four party committee to arrange for the provision of the various structures to be set up and a sub-committee to decide on the activities deemed harmful to the environment that would require impact assessments. At the end of June the recommendations were given to the cabinet. After the cabinet agrees then a process of parliamentary approval is required which in the current political climate could take as much as another year.

Up to the end of Q2 2010 about 46 projects are still suspended. It has been mooted that other projects in Thailand could come under the spotlight by the environmental activists. The potential ramifications of the impasse are considerable. The petrochemi-cal and steel industries represent a key upstream foundation for a host of industrial products. The automotive industry relies on its plastics and steel while the textile industry uses its man made fibres. Manufacturing of feedstock, detergents, industrial chemicals are all supplied by the petrochemical industry.

Within these fields Thailand is moving up the value chain and represents a significant driver for its future industrial development. This is now under threat and to make matters worse, Vietnam is embarking on its own petrochemical path with the operation of the Dung Quat refinery in the centre of the country. Until resolution of the Map Ta Phut situation the appeal of Thailand as an investment location will be severely threatened as ASEAN trade pacts are set to transform the industrial landscape for the coming decades.

THe MaP Ta PHUT siTUaTion



invesTMenT bY boi Zone

Source : Board of Investment and Colliers International Thailand Research


The BOI divides Thailand into three zones based on the level of economic development. The zones provide the basis for the various incentives provided for investors with the poorer zones being offered longer tax breaks for example. Zone 1 consists of Bangkok and the neighbouring provinces; zone 2 is where most of the industrial estates are located such as Chonburi and Rayong. Zone 3 covers the poorer provinces and is further subdivided according to the level of development.

While zone 2 commands the lion’s share of investment it is interesting to note the paucity of outlay being provided to the poorest 22 provinces. In fact the population of these provinces is greater than that of the whole of zone 2, therefore on a per capita basis the gulf is even starker.


Manufacturing exports exclude agriculture, mining, fishery and forestry which have very little relation to manufacturing performance. The use of gold trading in export figures distorts the export situation as no manufacturing takes place with such activity and as such represents more of a paper transaction although there is physical movement of the gold. However by

any measure, exports have responded strongly since the global economic turndown. This was powered by the automotive and microprocessor industries.

Colliers International Thailand ResearchSource : Bank of Thailand , Ministry of Commerce

ManUfacTURing exPoRTs PeRfoRMance Y/Y inclUDing anD exclUDing UnTReaTeD golD exPoRTs



The Manufacturing Production Index indicates the volume of production and the overall health of industry. Over the course of the past 18 months there has been a steady rise as the overall global economy started to recover from the severe downturn. It

would seem that domestic demand would account for a signifi-cant share of this growth in the first half of 2009 due to weak export numbers.

Capacity utilization is an important measure to access how much of a nation’s productive capacity is being utilized. When this figure reaches the eighties, inflationary pressures take root. They are also an indication of the health of the industrial sector and future demand for industrial space, the greater the percent-

age the more demand for industrial space is likely to exist. The table above shows how Thailand’s staple manufacturing sectors suffered in the wake of the global economic downturn and how they have picked up over the course of 2009 and into 2010.

ManUfacTURing PRoDUcTion inDex bY MonTH

caPaciTY UTiliZaTion

Source : Bank of Thailand and Colliers International Thailand Research

Source : Bank of Thailand and Colliers International Thailand Research



new facToRY PeRMiTTeD DURing THe PeRioD 2003- 2009

new facToRY PeRMiTTeD DURing JanUaRY 2009 – JUne 2010

The beginning of the political troubles in 2005 spelled the beginning of a decline in new factories for the rest of the decade.

The growth of demand for new factories has remained stable over the course of the past eighteenth months. What this seems to indicate is that the rebound in industrial growth has come about from existing businesses rather than the entry of new ones into the market, hence the increase in capacity utilisation. Estab-lished players know the Thailand market well and are relatively unfazed by the trails and tribulations of Thai politics. Also indus-trial decision making is very long term, involving the slow and solid build up of a supplier base plus a knowledgeable workforce

and investors will not pull out due to sporadic problems. Many countries have their ups and downs and long term investors simply ride these out. It is also the case that negative events often have very little direct impact on the manufacturing process and only affect overall sentiment. That aside, new entrants are likely to be far more cautious in making such a long term move during a period of conflict. As ASEAN further integrates, this could be damaging during a protracted spell of instability in Thailand as new players seek to enter the market.

Source : Department of Industrial Works

Source : Department of Industrial Works



The Japanese are the largest investors in Thailand with approxi-mately 41% followed by Europe and East Asia both with 15%. While North America and ASEAN have some share other parts of the world have very limited manufacturing facilities here.

In the first four months of 2010, Japanese investors proposed 99 projects to the BOI with a total value of 25.6 billion baht, an

increase of around 150% from the same period last year. However concerns remain in regards to the Map Ta Phut problem but the Japanese still remain committed to Thailand in the long term.

THe PRoPoRTion of invesToRs in inDUsTRial esTaTes H1 2010 bY aPPRoveD RegisTeReD caPiTal

Source : Industrial Estate Authority of Thailand



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The location of industrial estates or industrial parks is based on factors such as land selling price, proximity to transportation facilities, infrastructure and a supplier base. The concept of clusters is an important factor for locating a factory. Samut Prakarn commands the highest land prices due to its prox-imity to Bangkok and the international airport. The wide variation of prices in Chachoengsao province is due to a number

of industrial estates being located close to Bangkok while others, mostly pulp and paper manufacturers, are located further away from the capital. Provinces such as Songkhla and Saraburi have much cheaper land prices due to their location far from Bangkok or port facilities.

The developer of RBFs buys land usually in the area of an industrial estate or industrial park and builds factory buildings for lease or sale. Areas range from 1,000 – 6,000 sq m and are built to international standards. TICON is the biggest developer in this business; they have many factories and warehouses in Thailand. Other developers include TFD and industrial estate develop-ers such as Amata, Pinthong and Hemaraj, although this group develops factories only in their own industrial estates.

Ticon Industrial Connection Plc. (TICON)

TICON is the largest firm in the ready built factory and logistic warehouse sector and are also involved in the development of lo-gistic parks. They have set up two listed property funds for their own property. The factory and warehouses of TICON are located in industrial estates and industrial parks with full facilities and international standard factories for lease or sale.



ReaDY bUilT facToRY (Rbf)



ReaDY bUilT facToRY

No. of Buildings Building Area (sq m)

TICON

Supply 168 459,725

Occupied 135 376,450

Available 33 83,275

Occupancy Rate (%) 80.36 81.89

Future Supply 84 199,400

Ticon Property Fund (TFUND)

Supply 174 397,425

Occupied 149 342,625

Available 25 54,800


waReHoUses

No. of Buildings Building Area (sq m)

TPARK

Supply 34 144,020

Occupied 25 101,070

Available 9 42,950


Future Supply 44 173,572

TPARK Logistics Property Fund (TLOGIS)

Supply 15 70,731

Source : Ticon Industrial Connection Plc.

Source : Ticon Industrial Connection Plc.

All of the ready built factories are located in large industrial estates and industrial parks in the Central area and Eastern Seaboard area, such as Hi – Tech, Rojana, Bangpa – In, Bangpoo, Amata Nakorn, Amata City, Laem Chabang, Pinthong.

A large number of tenants in the ready built factories are Japanese with around 55% followed by Europe and USA with

13% and 6% respectively. Most of the industrial factories are for the electronic / electrical industries with just over half and about 20% are for the auto parts industry.

Warehouses are in locations that support distribution such as Bangna – Trad Road, Laem Chabang, Ayutthaya province and Saraburi province.

Europeans rent the most warehouse space with 34% of the total followed by Australians and Japanese with 27% and 22% respectively. 54% of tenants rent warehouse space for logistics.

Although occupancy rate in RBFs and warehouses decreased approximately 7.8% from 2008 in both types, Thailand is still a strong location for manufacturing, so TICON continues to develop ready built factories and logistics warehouses for rent and sale in the long – term.


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inDUsTRial news

The Industrial estate authority of Thailand (IEAT) cooperates with two private sector companies to develop service – sector industrial estates in Phetchaburi. These service – sector industri-al estates are a new type of industrial estate in Thailand, and are focused on travel, health, and accommodation business rather than manufacturing

1. Thai Diamond City Project by Petch Thai Pattana Co.,Ltd.

Petch Thai Pattana Co., Ltd in cooperation with the Industrial Estate Authority of Thailand set up “Thai Diamond City Proj-ect” with a total area of approximately 14,000 acres or 35,420 rais comprising of 8 zones. Foreign ownership (100%) is allowed for this project.

2. TCC PD 13 Co., Ltd.

TCC group set up TCC PD 13 Co., Ltd. for the development of a service industrial estate in Phetchaburi which has already been approved by the IEAT. TCC plans to develop a healthcare centre, spa, residential, hotel and movie studio in this project with a total area of around 13,335 rais with an investment of about 13 billion baht. The first phase of this project consists of an “Eco – Village Resort” in a land area of 1,366 rais and will comprise a hotel, villas and public utilities with an investment of approximately 2,400 million baht for supporting retirement communities from Europe, China, Japan and the Middle East.

IEAT plans “Eco – Industrial Towns”The Industrial Estate Authority of Thailand plans to turn its 42 industrial estates into so-called “eco-industrial towns” by 2019. The Map Ta Phut Industrial Estate will be the first to be trans-formed.

Eco-industrial towns will allow every sector to participate in drawing up a development plan that incorporates environmental and health concerns with labour and building networks with the local communities and people living and working on the estate. The first phase will focus on developing 15 pilot eco-industrial towns from 2010 to 2014. Phase two will expand the areas to be developed between 2015 and 2019.

Sony expansion development in ThailandSony (Thailand) Co., Ltd. has been approved by the BOI for a new factory with an investment of 2,600 million baht and this new factory will hire more than 1,000 workers.

Mill Con Steel Industries Plc. spend 5billion of baht for fac-tory in ThailandMill Con Steel Industries Plc plans to invest 5 billion baht in de-veloping a smelter to produce billet in a bid to cut import costs. The new production will be ready in October 2011 after their factory in Map Ta Phut received permission from the court to resume construction four months ago.

Canadoil to invest 20 billion of bahtCanadoil Group plans to invest about 20 billion baht to develop a factory for the manufacture of hot-rolled steel plates in Ray-ong.

Thailand still tops the list among Japanese firmsA 2009 survey by the Japan Bank for International Cooperation (JBIC) showed that Thailand is fourth on the list of countries most preferred by Japanese investors behind China, India and Vietnam

Purac (Thailand) to build a 2 billion baht lactic-acid factoryPurac (Thailand) plans to build a 2 billion baht facility for lactic - acid production which is scheduled for completion in 2011.

Indians shelve 10 industrial projects Indian investors planned to development 10 industrial projects in this year, but they have been put on hold due to the Map Ta Phut impasse. Each project is worth at least 100 million baht.

Ford to build 15 billion of baht plantFord plans to start producing its passenger cars in a new 15 bil-lion baht factory in Rayong. The new factory is scheduled to be completed in 2012, and this factory would support 2,200 jobs directly and as many as 8,800 jobs indirectly. Land bridge plan revivedThe Thai government plans to spend 400 billion baht to build a land bridge from the Andaman Sea to the Gulf of Thailand. Some countries were interested to develop the project with the government, including Japan, Kuwait and Abu Dhabi.

TEG joint venture with SUMITOMO to export tyres. Thai Eastern Group (TEG) and Sumitomo Rubber Industries (SRI) have agreed to form a joint venture to manufacture auto-mobile tyres to serve the Japanese automobile industry, which is scheduled to start operation in 2011. The total investment value of these projects is estimated at approximately Bt1.1 billion.

Stars expanded their manufacturingStars Microelectronics (Thailand) will spend 400 million baht to expand integrated-circuit production from 100 million units a month to 150 million.



foRecasT

The ever increasing interconnected trade agreements within the Asia Pacific region presents the greatest opportunity for Thai-land to prosper or perhaps suffer if not managed correctly. Many multinationals will seek to consolidate production to one or two countries as tariff reductions mean that it will be considerably cheaper to export within the region. Regional supply chains are becoming increasingly prevalent as can be seen in the garment/textile industry. Labour intensive manufacturing is moving to low cost labour countries such as Vietnam and Bangladesh while higher end technical and capital intensive manufacturing will be focused in more industrialized countries such as Thailand.

With its strong automotive and electronics industrial founda-tion, Thailand can seek advantages from the new dynamics, but dangers lurk. A long protracted period of civil strife will deter future investors from entering and even existing investors will start to reconsider their long term plans. The education system at present is unable to adequately provide for the demand for the skilled workers that are required if the country wishes to move up the value chain and compete with the likes of Malaysia and Singapore rather than Laos and Myanmar.

The situation regarding Map Ta Phut worries investors as it points to an unclear regulatory framework for industrial policy. The resolution of the Map Ta Phut issue in accordance with the 2007 constitution continues to drag down overall sentiment in regards to Thailand’s attractiveness as an investment destination.

The growth of the industrial estate market is aided by its solid foundations. The BOI and IEAT provide strong incentives and support for industrial investment, the private sector companies have considerable experience of the market and are well funded, advocacy from the manufacturers themselves is largely served by the solid Japanese organisations such as JETRO and the Japanese Chambers of Commerce whose quiet voice carries considerable weight.

The Knowledge Report | 2nd Quarter | 2010 | Bangkok Serviced Apartment Market


conTacT infoRMaTion

This report and other research materials may be found on our website at www.colliers.co.th. 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.

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collieRs inTeRnaTional THailanDManageMenT TeaM

PROJECT SALES & MARKETINGWasan Rattanakijjanukul | ManagerNukarn Suwatikul | Manager

DEVELOPMENT CONSULTANTSNapart Tienchutima | Manager

OFFICE & INDUSTRIAL SERVICES / RETAIL SERVICESNarumon Rodsiravoraphat | Senior Manager

REAL ESTATE MANAGEMENT SERVICESViroj Piromthong | Management AdvisorBandid Chayintu |Associate Director

HOSPITALITY ADVISORYJean Marc Garret | Director

INVESTMENT SERVICESNukarn Suwatikul | Senior Manager

RESIDENTIAL SALES & LEASINGPatima Jeerapaet | Managing Director

RESEARCHAntony Picon | Senior ManagerSurachet Kongcheep | Manager

VALUATION & ADVISORY SERVICESNicholas Brown | Associate DirectorPhachsanun Phormthananunta |Manager

PATTAYA OFFICEMark Bowling | Sales ManagerSupannee Starojitski |Business Development Manager

The Knowledge Report | 2nd Quarter | 2010 | Bangkok Serviced Apartment Market

THailanD: Patima Jeerapaet Managing Director [email protected]

Narumon Rodsiravoraphat Head of Commercial [email protected]

Antony Picon Senior Manager | Research [email protected]

Surachet Kongcheep Manager | Research [email protected]

thailand industrial real estate report h1 2010

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