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Research & Forecast Report

Yangon | Retail Market 3Q 2014

Yangon retail market ripe for expansionYangon’s retail market is set for major changes with new and modern shopping formats slated to be introduced in the medium term. The positively transitioning economic climate and the increasing urban population are impetus to retail growth, driving both local and foreign investors to strengthen their portfolios. As a result, the supply stock is expected to double by 2018 with over 250,000 sq m of retail space currently in the pipeline. Though the majority of the new supply are mid to large-scale shopping centres, the number of supermarkets and convenience stores are similarly rising with expansion plans being aggressive.

The city-wide occupancy rate remain on an upward direction and the pre-commitment rates are strong which suggest that demand for retail space will be at an all-time high. The average occupancy rate ended at 96% in 3Q 2014 and will head to almost fully-occupied level in the next six months. The average rental rate continued to increase modestly on a quarterly basis but is set for substantial growth in line with the eventual opening of new and better quality retail facilities.

Forecast Direction

3Q 2014 – 3Q 2015

New Supply

Occupancy

Rent

2 Research & Forecast Report | 3Q 2014 | Yangon | Retail Market

Retail stock doubling in 2018 As at the end of 3Q 2014, Yangon’s total retail gross leasable area was approximately 150,000 sq m. This constitutes various retail formats namely shopping malls, department stores, hypermarkets, and support retail components - integrated in residential and commercial developments. On a quarterly basis, the retail stock was unchanged but is up year-on-year by 25.2%.

Out of the 30,800 sq m of new retail supply this year, the majority were delivered in the first six months, including AKK Shopping Mall (Aung Kaung Kyaw Construction Co., Ltd) in Thingangyun Township, Myanmar Culture Valley (Nature World Co.) in Dagon Township, Orange Thaketa and Ocean Super Center, by City Mart Holdings Co. Ltd., located in Tharketa and Tamwe Townships, respectively. In the remainder of the year, River View Point Yangon, a residential condominium, is set for completion to bring over 2,000 sq m of additional support retail component.

Yangon’s retail market performance was unexceptional during the past decade with annual new supply growing at a modest rate. The positive shift in the economic climate in the last two years have then heavily attracted foreign and local real estate investment, set to bring major transformation to the city landscape. Along with the current rapid commercial developments, the retail market is similarly geared for significant changes. In particular, the stock is expected to double in the next five years with a strong supply pipeline totaling to over 250,000 sq m. The majority will take shape in forms of community shopping centres, lifestyle malls, and support retail components; and will be incorporated in future sizeable mixed-use and integrated developments such as HAGL Myanmar Centre, Junction City, Crystal Towers and Residences, Golden City, Kantharyar Myanmar Centre, Dagon City 1, Capital City, and Time City to name some. Unlike the other commercial sectors, the retail market at present is broadly characterized as a domestically-dominated market with mostly local tenants. However, these future modern retail developments bode well for foreign brands especially mid-tier priced items of popular clothing, accessories and apparel lines as well as fast moving consumer goods.

Supermarkets and convenience stores as prevalent retail formatsThe number of supermarket and convenience stores are also on the rise, particularly in key residential communities and densely populated zones, as in Downtown. Supermarkets are widely evident throughout the city. Typically, these are the first entrants of modern retail formats that surface in emerging markets, geared towards the more affluent section of the population. Generally, supermarkets in Yangon are anchored tenants of most shopping malls.

The Inner City zone roughly represents close to half of the total number of supermarkets. Although it has a relatively smaller population than the other areas, a higher proportion of its residents are generally wealthy.

Supermarkets are widely distributed throughout Yangon. However, traditional retail establishments such as shop houses, local markets, and kiosks are still the main preferred shopping formats by most locals. The prohibition of motorbikes in the city coupled with the limited purchasing power of the general population, support the prevalence of small-scale retail shops as access is convenient. Due to this trend, a growing number of convenience stores are sprouting up throughout the city and the major chains are now planning to expand aggressively.

One of the popular chains include City Express which opened its first convenience store in Hledan road in 2011 – formerly called 108 Store. Developed by City Mart, the company is looking at expanding extensively from more than 40 outlets at present. Over half of its outlets operate 24 hours and many are located in Downtown. Also, Capital Diamond Star Group is rolling out its expansion plans for its Grab & Go brand. Currently with more than 20 outlets, the company plans to bring over 800 outlets within five years. In addition is ABC convenience store which was the first to open in year 2000 and is now running over 50 outlets, some being in Mandalay.

Yangon Retail Stock

Source: Colliers International Myanmar

020,00040,00060,00080,000

100,000120,000140,000160,000180,000200,000

3 Research & Forecast Report | 3Q 2014 | Yangon | Retail Market

Rental rates to increase substantially in the medium termThe city-wide retail rental rate continued to grow in high single digits on a quarterly basis, to end at an average of USD 24.51 per sq m monthly in 3Q 2014. The rent increased by close to 7% on a quarterly basis, though was slightly lower than 2Q 2014’s 7.8%. Overall, rents remain on an upward trend albeit at a relatively modest rate compared to the other commercial sectors. Meanwhile, rental rate for the shopping mall segment expanded by 4.8% QoQ, double the increase of that than in 2Q 2014. The growth in rent was mainly driven by the introduction of improved quality retail centers and the recent minor upgrades in select shopping malls such as Junction Maw Tin. For the same segment, the highest rental rate recorded was at USD 50 per sq m monthly.

In the next three months, Colliers predicts that the average rent will breach the USD 25 per sq m mark, to grow by over 4% on a quarterly basis. However, rents are expected to surge substantially in the medium term in line with the opening of modern and better standard shopping centres along with the entry of foreign F&B’s, being upward pressures on rents.

Source: Colliers International Myanmar

City-wide Average Retail Occupancy Ratea

City-wide Average Rental Rateb

Source: Colliers International Myanmar

Growing urban population will drive further retail demandIn 3Q 2014, the city-wide average occupancy rate in Yangon increased marginally by 0.33%. Despite that the occupancy is lower by 2% in the same period last year, vacancies remain generally low across all retail establishments, and the overall take-up continues to trend upwards. By next quarter, the average occupancy rate is projected to rebound to almost fully-occupied levels, earlier than previously forecasted. The high interest for future modern retail centers will gradually translate to strong pre-commitment rates, an upward pressure on demand.

The growing consumer population is a fundamental demand driver for the market going forward. While Myanmar continues to attract foreign inbound investment, the number of both local and foreign individuals lured to Yangon is further expected to heighten. This will drive an increase in the city’s population, specifically in key existing commercial zones such as in Downtown; emerging destinations in the Inner City area; and in nearby townships of the Outer City zone - translating to a rise in spending frequency.

Karlo PobreManager Research & Advisory+95 (0) 931 336 099karlo.pobre@colliers.com

Theint Theint ThwinResearcher Research & Advisory+95 (0) 950 267 22theint.thwin@colliers.com

Tony PiconManaging Director | Myanmar+95 (0) 942 103 4026antony.picon@colliers.com

Copyright © 2014 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Colliers International Myanmar Unit 7/C (6th Floor) White Cloud Building, No. (138/142) Thein Phyu Road, Botahtaung Township Yangon Myanmar TEL +95 (0) 931 491 678

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