FRIDAY, March 29, 2024
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Developers turn to recurring income as market changes

Developers turn to recurring income as market changes

WITH THE country moving toward a sharing economy, property firms are studying how they could develop property that generates recurring income by serving demand in the market. 

 

“Customers behaviour in the market has already changed to renting residential rather than buying residential for themselves,” LPN Development Plc’s chief executive officer and managing director, Opas Sripayak, said in a recent interview with The Nation. “This inspired our business to move to developing residential for renters in order to serve customers’ demand.” 
He added that the trend of the young generation is to choose a sharing-oriented lifestyle rather than owning all assets including an office, car and residence. Most of this generation to not want to be the sole owner of a residence, and the next step for property firms will be to respond to this choice with a business model based on developing rental apartments and serviced apartments.
“We do not develop serviced apartment or rental residential at this time, but we are studying it and may do so the next time we see that opportunity,” Opas said.
However, the company is currently developed offices for rent at Vibhawadee Rangsit as part of its mixed-use project, that includes condominium, retail and office space, he said.
In this year the company will increase its recurring income to 15 per cent of total revenue, up from last year’s 2 per cent, by focusing on rental offices and its service business, Opas said.
Vasin Mahaphon, 37, bought townhouse at Ekkamai Soi 28 and renovated the residences with the intention to sell, but when the renovations were complete he found most customers wanted to rent rather than buy the homes.
“One of our customers paid rental averaging Bt40,000 a month with the rental fees for two years paid in advance. I even asked them why they did not buy because they had more than enough money to. They told me that they do not want to be the owner of a residence, because if [they rent] it will be easier for them to move when they change their job,” Vasin explained. 
Responding to the market trend, most property firms are launching their new business model which focuses on recurring income to match customer demand.
For example, Origin Property Plc has established One Origin Co Ltd to manage and expand its recurring income to ensure sustainable growth. The new company, formed this year, has set a Bt12-billion budget for a slew of new projects, including Staybridge Suites in Thonglor, Holiday Inn & Suites at Sriracha Laemchabang in Chon Buri province, Staybridge Suites in Sriracha, Chon Buri province, One Origin hotel on Sukhumvit 24 and the One Origin retail complex in Phya Thai. 
All new projects under One Origin Co Ltd will generate recurring income for long-term sustainable business growth, and also match the changing customer demand, Origin Property Plc’s chief executive officer, Peerapong Jaroon-ek, said recently.
Following the market trend effected not only the residential market, but also other property sectors including office buildings and hospitality businesses. 
For example, office building concepts have already changed to include co-working space to serve the new market for small and medium enterprises and start-ups who do not need high-cost office rentals. Members of co-working spaces pay a cost lower than traditional office-space rentals.
Co-working spaces in Thailand made up a total 100,000 square metres combines at 2018 year-end, or about 2.6 per cent of total office space nationwide, according to reports from property agency firm Nexus Real Estate Advisor Co Ltd. Co-working space will increase to 30,000 square metres in this year, Nexus research predicts.
According to a survey by Global Co-Working Unconference Conference, the worldwide forecast for co-working space totalled 17,725 offices by 2018 year-end, up 16 per cent from 2017. Its research also forecast an increase to 30,432 co-working offices in the year 2022.
JLL Thailand’s managing director, Suphin Mechuchep, said the popularity of a co-working space could be attributed to the difference in rental costs as well as its environment, infrastructure and design.
To stay competitive, owners of office buildings need to consider include a shared working space in their properties for individual users, she said. 
For retail complexes, a co-working space could boost traffic to the venues amid the challenge of e-commerce. Suphin said the mix of users has now widened to employees of large corporations wanting their staff to learn and share ideas in a broader community. 
“A co-working space should be easy to access, come with good infrastructure and an appealing design, and provide both public and private areas,” she said.
Meanwhile, hospitality business are also experiencing the impact of the public demand for Airbnb, an online marketplace connecting people who want to rent out their homes to people who are looking for accommodations in that locale. 
It currently covers more than 81,000 cities and 191 countries worldwide. The company’s name comes from a play on “air mattress B&B”.
According to research by the SCB Economic Intelligence Centre (EIC), Airbnb’s worldwide exponential growth is squeezing hospitality sector revenues, particularly among hotels in the middle-to-low price range. 
Since its launch in 2010, Airbnb rooms have increased at the rate of 150 per cent yearly. It now offers more than 2 million rooms, compared to the 1.5 million of the Marriott group – the world’s largest hotel operator. 
The research shows that hotel rates in Thailand are relatively low compared to other countries and cost about the same as Airbnb rooms. As a result, travellers are likely to choose the traditional option and Airbnb is not likely to hit Thailand’s hospitality sector in Thailand as hard as in some other countries.
However, more than one million Chinese tourists are booking rooms through the Airbnb website, and its room availability in Bangkok is expanding by more than 100 per cent. Chinese consumers are open to innovation, including a sharing economy. Data from China’s Information Centre indicates that more than 500 million Chinese consumers have used sharing economy services.
In 2015, Airbnb teamed up with Union Pay and Alipay as part of its aggressive push into the Chinese market, resulting in a dramatic 500 per cent uptick in users. Since Chinese travellers make up 27 per cent of the Thai tourism market, Airbnb won’t have much difficulty increasing its market share in Thailand.
Moreover, Airbnb continues to expand in Thailand, with around 9,000 rooms in Bangkok this year compared to around 4,000 last year. Airbnb also offers what comparable hotels cannot, for example larger rooms with a kitchen at a similar price to a standard hotel room.
Hotel operators should get ready for increased future competition from Airbnb. Other service businesses can also benefit from Airbnb’s growth. EIC recommends that hotels not compete on price. Rather, they should upgrade their services and sell customers on the added convenience and services they would enjoy from staying in a hotel. It is worth noting that Airbnb customers are usually on the lookout for new experiences, rather than just a place to sleep.
As well, business owners in the service industry can utilise their existing resources to provide services to Airbnb room owners, such as housekeeping, key deposit or reception service in a coffee shop. All of these are in high demand among Airbnb room owners.
With the global and local market trend moving toward sharing businesses and a sharing economy, all property developer firms – both residential and commercial – are under unavoidable pressure to revise their business models to match the market demand.
 

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