As purchasing power slows in mature markets like the U.S. and the Eurozone, international luxury and high street brands are seeking expansion opportunities in dynamic, rapidly growing Asian markets.
Thailand is fast becoming the destination of choice for a number of brands and international tourists from large, high-expenditure source markets. Locating in Bangkok offers retail brands a combination of low rents and high exposure to both domestic and foreign consumers. With 1.54 million square metres (16.6 million square feet) of prime grade specialty space, rents in Bangkok are approximately $72 US per square metre per month, much lower than $323 US and $424 US per square metre per month in Singapore and Hong Kong, respectively. At the same time, international tourist arrivals and per capita expenditures are reaching new heights.
Despite these opportunities, challenges remain for the luxury retail segment in terms of both the domestic economic situation and existing taxation regimes. While many high-profile international brands, including Giorgio Armani, Valentino, Sephora and Victoria’s Secret, have entered the Thai market recently (or plan to do so by year-end), the current taxation structure makes for a tough sell to domestic consumers, let alone international visitors. For example, it is common for Thai consumers to seek out luxury goods locally from grey market retailers or to make purchases while abroad.
In an effort to stimulate both lagging domestic consumption and burgeoning tourism expenditures in the retail sector, the Thai government is considering a proposal that would reduce taxes on luxury goods from 30 to five per cent in order to better compete with regional luxury retail destinations like Hong Kong and Singapore. The proposed tax reductions will initially cover imported luxury goods such as cosmetics, perfumes and watches.
While the specific extent of the tax reductions in scope or scale is unknown, news reports suggest the scheme could be in place by year-end. That said, the efficacy of this initiative is in question, with some experts expressing doubts over whether such tax reductions will increase arrivals and expenditures to an extent that outweighs the possible negative impacts on domestic brand competitors.
Looking ahead, it is expected that new international brands will enter the Thai market and existing brands will expand their market presence, attracted by low rents in prime centres and the growing purchasing power of both domestic and foreign consumers. Many brands are choosing to locate in one of two new high-profile projects (expected to come online in the next 12 months) from Thailand’s leading retail developers, Central Group and The Mall Group.
Scheduled to open in December, Central Embassy boasts a gross floor area of 71,000 square metres (764,237 square feet) and is 90 per cent pre-leased. With stores by Chanel, Gucci, Prada, Hermes and Paul Smith, approximately one-third of the luxury shopping complex’s retail tenants will be international fashion brands.
EmQuartier is scheduled to open roughly a year later in late 2014. It has a gross floor area of 200,000 square metres (2.1 million square feet) and is now 100 per cent pre-leased.
In line with this activity, vacancy rates are expected to remain stable across Bangkok, with rents rising gradually, particularly in prime grade centres.
Anusorn Rotkanok is an analyst at Jones Lang LaSalle Thailand, specializing in retail and investment market research. Jones Lang LaSalle is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. The company operates in 70 countries from more than 1,000 locations worldwide.
