For years Pearl Condominium, a complex of four high-rise buildings towering over one of Yangon’s busiest roads, was shunned by prospective commercial tenants. Demand was low in the sanction years, so it didn’t make sense for its owner, Asia Express, to invest in improvements.
The influx of foreign companies has brought change to the Pearl Condo. In the last few months builders have been busy in its once-deserted corridors.
Director Stephen Lee of the 777 Lux Group is tasked with renting out 60,000 square feet of office space in the re-awakening building.
“In the sanction times the market took a bad turn,” Mr Lee said. “At the time A and B tower were pretty much fully booked. But C and D tower were left alone. There was just not enough demand for retail space.”
“For us to be able to rent out to shops we would need a major revamp,” he added. “Therefore we are converting retail spaces into offices, with some improvements. We’ve been able to attract companies because of the location and the rent levels. We are offering office space at two dollars per square feet under the going market rate.”
Rental rates in Yangon are high compared to many other regional cities, including Bangkok and Phnom Penh.
This cannot be justified by supply and demand mechanisms only, said Tony Picon, managing director of real estate firm Colliers International Myanmar.
“There isn’t oversupply. Many offices are overpriced at this point; the market is difficult and soft,” he said.
“Government action – licensing and regulations – determines for a large part what happens to the market. The government can open things up. After that it takes on its own momentum, like we’ve seen happening with the telecom market.”
Supply will increase in the coming years. At key locations around Yangon mixed developments offering office space, hotel rooms and retail spaces are under construction. Mr Lee predicts that about two million square feet of commercial office space will be on the market in the next two years.
“I hope this will push the market prices down,” he said. “Exorbitant prices are currently a hindrance for foreign companies wanting to enter the country. The Myanmar method of payment is not conducive either. To my knowledge only in Indonesia and Myanmar you have to pay one year of rent upfront. One or three months is more common. Companies contemplating coming to Myanmar have to factor in all the extra costs of expensive loans and high upfront deposits.”
It is not only office buildings erected when misguided optimism and the need for money laundering projects ruled the market that are being resurrected. After the privatisation boom of 2010 and 2011, a move intended by the former regime to remove state property from the influence of future democratically chosen governments, empty government buildings are also being converted into commercial office space.
Among them is the former Ministry of Foreign Affairs building on Yangon’s Pyay Road. Last year the building was reopened as June XI Business Centre. Other former government buildings are also being transformed, mostly after a tendering process and under build-operate-transfer (BOT) schemes.
“Some former government buildings are rented out now, others are being renovated,” said Mr Picon. “Older colonial buildings will follow. I think many of the heritage buildings will eventually be transformed into hotel rooms or office spaces.”
When the overheated market for office space cools down Mr Picon and Mr Lee hope it will become easier to rent buildings that are still too expensive for the quality they offer.
Mr Lee remains optimistic about the future of Pearl Condo.
“This is a rough gem. The building is coming to life again and will bustle with activity in the next couple of years.”
