Bangkok’s prime retail after the pandemic

With the pandemic looking set to continue through the first half of 2022, thoughts of a buoyant retail industry spurred by 40 million tourist arrivals and an economy driven by increasing exports seem like a distant memory for retailers in Bangkok. These retailers have spent the past two years adapting to the reduced footfall and lower average basket size by joining/creating e-commerce platforms to minimise losses or even stay in operation.

E-commerce evidently performed much greater, benefiting from the difficulties facing brick-and-mortar retailers. The correlation between increasing vacancy rates in Bangkok malls trends with the increase in gross merchandise value of e-commerce, the question is whether the correlation will continue as we begin to approach the end of the pandemic.

Figure 1: Bangkok prime retail: total stock (sqm) and vacancy rate (%), from 2018 to 2025F

_{Source: JLL Thailand Research}

The occupancy rate of the prime malls in Bangkok has typically performed higher than the market-wide figure. These malls are in the best locations and maintained to the highest standard of physical quality and quality of tenants.

In 2019, prime malls enjoyed an average vacancy rate of 3.73% before the pandemic drove it to a high of 4.91% in 2021, representing an increase of 118 bps. This hike translates to the amount of vacant space in prime malls increasing by approximately 33,500 sqm through the same period. Simultaneously, the total stock increased with the completion of new malls, including Siam Premium Outlet and The PARQ, and the renovation of The Mall Lifestore Ngamwongwan and The Mall Lifestore Thapra. These developments would have increased the vacancy rate slightly, as new malls tend to have comparatively higher vacancy rates.

Figure 2: Growth of e-commerce: Thailand e-commerce Gross Merchandise Value (USD Billion) p.a., from 2018 to 2025F

_{Source: Google TEMASEK Bain & Company}

According to Google’s e-Conomy SEA 2021 report, Thailand’s e-commerce market experienced a 140% (CAGR) increase in gross market value in 2019-2020, with another 75% (CAGR) increase in 2020-2021. This sharp growth was directly a result of the pandemic restrictions and changes in social behaviour. Thailand’s e-commerce is expected to slow down, with an average of 14% growth expected each year until 2025. Nonetheless, JLL predicts the average vacancy rate for Bangkok’s prime malls to continue increasing due to abundant new supply of 551,000 sqm in total, expected to enter the market during that time.

While there may be a positive correlation between Bangkok’s prime mall vacancy rate and Thailand’s e-commerce market value growth from 2019 to 2021 due to the pandemic, we expect their trends to diverge going forward due to broader external factors and different marketplace fundamentals. Even as e-commerce growth is slowing, the increasing share of total retail sales of e-commerce will pose an ever-increasing pressure on brick-and-mortar retailers. The pandemic accelerated this trend, forcing retailers to adapt more quickly. The retailers who adapted and survived the pandemic will likely be in a better shape to deal with the increasing pressure from e-commerce.