Myanmar | research reports

Nay Pyi Taw PROPERTY MARKET REPORT SEPTEMBER 2019

Matching realistic growth with grand ambition

Summary • Internationally managed hotels surviving from supply glut

• International school opens new campus in preparation for embassy relocation

• Retail malls flourishing

• Poorly managed hotels struggle with significant vacancies

INTRODUCTION There are signs of new growth in Nay Pyi Taw, Myanmar’s administrative capital. The city, which is located approximately halfway between the city’s two most populous cities – Yangon and Mandalay – has been the seat of Myanmar’s government since 2006 and is one of a growing number of the world’s planned, administrative cities. The list includes Washington (United States), Canberra (Australia), Brasilia (Brazil) Nur-Sultan (Kazakhstan) and Abuja (Nigeria). But it will not be the last: Indonesia recently announced that it will relocate the government from notoriously traffic-choked and waterlogged Jakarta to East Kalimantan, a province on the island of Borneo. A small number of diplomatic missions have already signalled their intent to establish a greater presence in

Nay Pyi Taw by announcing the opening of liaison offices in the capital, a move that will eventually lead to a shift their embassies to the capital. Faster to move have been companies, especially those that work in the business-to-government sphere, a growing number of which have already set up a physical presence in Nay Pyi Taw. Multilateral organisations such as the United Nations, that work closely with the government, have already set up a base in Nay Pyi Taw and will likely grow further in future. Nay Pyi Taw already has a broad range of accommodation options available and the opening of a new international school makes the city appear better equipped than ever before to become a family destination for expatriates.

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However, one sticking point that seems no closer to resolution is the availability of international healthcare facilities: as yet none of the international providers have announced plans to open even a clinic in Nay Pyi Taw. The need to develop the capital as a viable international city is still challenging on a financial level.

NAY PYI TAW TOWNSHIPS

Nay Pyi Taw has been designated a Union Territory directing administered by the president. The small town of Pyinmana existed before the relocation but most of the capital’s near one million inhabitants arrived after 2005. The city is divided into a number of townships that generally do not have a significant bearing on the zonal nature of the planned city.

POPULATION DENSITY OF SECONDARY CITY CAPITALS

Source: Picon-Deed Research

Many countries all over the world have located their capitals to secondary cities instead of the main commercial city. Often such new capitals are designed from scratch with an emphasis on low density living. Even compared to other such capitals Nay Pyi Taw has a far lower population density due to its significant land size, which is evident to anyone driving around the city. This creates a feeling of isolation and lack of vibrancy throughout the city that will take some time to alleviate.

PROPORTION OF POPULATION AS GOVERNMENT EMPLOYEES

Source: Picon-Deed Research

As the administrative capital of the country Nay Pyi Taw contains a significant proportion of government employees. Zabu Thiri Township hosts the largest proportion of government employees in relation to overall population because accommodation was designated specifically for government employees there, including colour-coded roofs based on job designation. Zabu Thiri is also the location of many government functions such as various ministries. Zaya Thiri Township records the second-highest proportion of government staff to general population, courtesy of the large numbers of military personnel posted there.

NAY PYI TAW ZONING NAY PYI TAW ZONES

The existing township structure only goes some way to explaining the overall structure of the city. The initial planning of Nay Pyi Taw was based on distinctive geographical zoning for particular functions: hotels,

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government ministries, military uses and diplomatic missions.

INFRASTRUCURE AND FACILITIES As a planned city, Nay Pyi Taw is becoming well equipped in terms of its infrastructure and facilities, with one key omission: international-grade healthcare facilities. There is a range of government-run and private healthcare facilities in Nay Pyi Taw to handle nearly any emergency, but medevac insurance would be mandatory for any international staff based in the city. Otherwise the city has multiple leisure options that include parks, retail malls, cinemas, sporting facilities, bike trails and plenty of swimming pools, located in many of the hotels. Given the sparse traffic, it is also easy to explore the surrounding areas. Road transport Nay Pyi Taw is a city linked only by road – there is no dedicated metro line. Many of the expatriates who call Nay Pyi Taw home have arranged their own transport – either by buying or renting a motorcycle or car. Arranging personal transport within Nay Pyi Taw is listed as important by long-term residents to ensure they have the freedom to buy groceries, visit restaurants, attend after work events, travel during weekends and make social appointments. There is also a public bus network within Nay Pyi Taw with routes geared to service the needs of the civil servants. There are regular day and night buses between Nay Pyi Taw and both Yangon and Mandalay. It takes about five or six hours to get from Yangon to Nay Pyi Taw, with buses stopping at either of the city’s two main bus stations: Thapyegone and Myoma Zay, which are in close proximity. Air transport Nay Pyi Taw International Airport is a large airport located about 10 miles (16km) to the southeast of the city. The airport is capable of handling up to 3.5 million travellers a year. The airport has daily flights from Yangon and Mandalay domestically, as well as direct flights to Bangkok, Shenzhen and Kunming on China Eastern Airlines. The limited number of international destinations served is also an impediment for expats wishing to locate in the capital.

Rail transport It is entirely possible to ride the train from Yangon Central Station to Nay Pyi Taw but it can take up to nine hours. Passengers can elect to alight at either Pyinmana or at the huge and underutilised Nay Pyi Taw station. Education Nay Pyi Taw has three international schools at present ranging from modest student numbers up to mid-size facilities that house hundreds of school students – enough to create mini traffic jams during pickup and drop off times. Sports and events Nay Pyi Taw hosted the 2013 Southeast Asian (SEA) Games and contains an impressive array of sporting venues. The city also has an enormous conference hall: Myanmar International Convention Centre 2, that is capable of hosting thousands of visitors.

HOTEL SECTOR Apart from government buildings, the main focus of real estate in Nay Pyi Taw is the provision of hotel rooms. In general the government mandated a wide range of developers and other businesses to construct and manage hotels shortly after the announcement of the new capital in 2006, likely in exchange for trading and mining concessions in other parts of the country. The purpose was to host events planned for the capital culminating in the SEA Games in 2013 and the chairmanship of ASEAN in 2014.

HISTORICAL SUPPLY OF HOTEL ROOMS

Source: Picon-Deed Research

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The surge in hotel rooms took place during the first half of the 2010s with the initial focus on the southern hotel zone where the lion’s share are rooms are still located. The construction boom came to a halt in 2014 upon completion of most of the planned hotels.

PROPORTION OF HOTEL ROOMS PER SECTOR

Source: Picon-Deed Research The first batch of hotels was locally managed and varies widely to this day in terms of facilities, quality and service delivery. The National Guesthouse Zone (also defined as the International Zone) was developed a year or two later with locally owned hotels managed by upper-scale international brands to provide a better and more consistent level of service. These hotels are the main focus for attendees of the international conferences such as the Euromoney Global Investment Forum, with the hotels in the other zones handling the spillover.

The Southern Zone contains most hotel rooms, stretched thinly along Yaza Thinghaha road. Some are within walking distance of two malls in the city. The Northern Zone hotels are quite isolated, even by Nay Pyi Taw standards.

PROPORTION OF HOTEL ROOMS BY CATEGORY

Source: Picon-Deed Research

The grading of hotel rooms is based on a number of factors such as room size and design, facilities and reviews. In Nay Pyi Taw there is an even balance between the three categories catering to different requirements and budgets. Many dignitaries and executives visit the capital and will usually stay in upper-scale hotels, especially in the National Guesthouse Zone. Lower grade hotels cater to businesspeople visiting the capital and a small but growing number of tourists, especially from China, who travel on tour buses.

Hotels are often fully booked during the twice-yearly Gem Emporiums when gem and jade buyers descend on Nay Pyi Taw to buy lots at auction. It is estimated that around 4,500 visitors visit Nay Pyi Taw for this event thus filling many of the hotels. Other large-scale events can fill up many of the hotels especially in the National Guesthouse Zone but otherwise the abundant supply of rooms far outnumbers the trickle of guests staying in the capital. As a result of the significant mismatch between demand and supply a number of hotels have chosen to close down operations except for the occasional high-demand periods such as the Gem Emporium.

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Western 3%

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Economy35%

Mid-Scale36%

Upper-Scale29%

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RESIDENTIAL SECTOR PROPORTION OF HOUSEHOLDS LIVING IN APARTMENTS

Source: Picon-Deed Research / 2014 Population and Housing Census

Due to the building of apartments specifically for government employees when the capital moved from Yangon, the township of Zayar Thiri – and to a lesser extent Pobba Thiri – contains a significant number of apartments. Otherwise, landed property dominates the housing market. Despite the overall size of Nay Pyi Taw, the proportion of housing that meets expatriate needs is limited, although there is a neighbourhood in Ottara Thiri Township that has found favour with expatriates. In general the quality of such residences does not match international standards with often poor interior finishing and limited maintenance by the landlords. Instead, most expats make long-term agreements with the hotels to lease suites or bungalows, which are mildly refitted with kitchen appliances, additional bench space and kitchen sinks. Currently most expats living in Nay Pyi Taw are single so smaller one bedroom or studio units are acceptable if not ideal, with only limited facilities for long-stay guests. Many hotels have an unusual spread of different room types, with too many large-size suites than would normally be considered ideal. However, these larger rooms lend themselves to conversion to long-stay arrangements, with the normal facilities of resort-style hotels: swimming pools, tennis courts and gyms being further draws. Currently most conversions have been undertaken by the internationally managed hotels although a good source of demand is possible as more expats locate to Nay Pyi Taw for locally managed hotels that can upgrade their rooms for long-stay use.

RETAIL SECTOR The sudden move of the capital from Yangon to Nay Pyi Taw in 2006 and subsequent relocation of government employees did not take into account the retail needs of the new occupants. The existing town of Pyinmana provided some rudimentary facilities and the building of the traditional Myoma market went some way to help with the hardship. However, mass retail began to appear in 2009 with the opening of the first phase of Junction Nay Pyi Taw by Shwe Taung Group.

HISTORICAL SUPPLY OF MASS RETAIL SPACE

Source: Picon-Deed Research

Since then another three malls have opened their doors: one other mall in the Southern Zone and two more in the Northern Zone close to the high-end residential area of Ottara Thiri Township. Due to the lack of entertainment options the retail malls provide one of the main sources of activity in the city with numerous food and beverage outlets and cinemas. Generally the better-managed malls can be quite busy during peak periods of the day and at weekends.

SPENDING POWER FOR NAY PYI TAW ZONES

Source: Picon-Deed Research / 2014 Population and Housing Census

The 2014 Population and Housing Census provides a number of different criteria that indicates spending power within townships in the absence of income data. By far the highest is Zabu Thiri Township, which also

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contains the highest proportion of government employees. This compares to similar grading for some Yangon townships such as North Dagon and Thaketa. It would appear that townships that have less involvement with government operations fare less well in terms of economic development and these tend to also be predominantly rural.

OFFICE SECTOR Currently many Yangon-based companies, both local and foreign, have also set up in Nay Pyi Taw due to the proximity to government officials, especially in the business-to-government realm. Although there is no official record, it appears that the majority of foreign entities are from Japan and China, with their emphasis on infrastructure projects. The other significant users of office space are multilateral organisations and international non-government organisations that also have a need to be near government decision-makers. At present most companies and organisations opt to lease landed hotel rooms (especially suites) or villas located in various parts of Nay Pyi Taw. No actual purpose-built office exists in Nay Pyi Taw to accommodate such companies. In mid-2018 12 of the 17 United Nations agencies present in Myanmar started operations in Nay Pyi Taw using space at the Union of Myanmar Federation of Chambers of Commerce and Industry building in Ottara Thiri Township. Despite the movement towards Nay Pyi Taw, in reality many offices are lightly staffed and key officials and executives – especially in the corporate sector – still choose to live in Yangon and commute to Nay Pyi Taw based on meetings. Over time this will be expected to change as Myanmar’s economy develops further.

INDUSTRIAL Nay Pyi Taw possesses significant amounts of land that could be used for industrial purposes and there is already some light industrial activity in Dekkhina Thiri Township, between the city and the Yangon-Mandalay express highway. However, recent visits suggested that much of the industrial infrastructure in place is used more for warehousing purposes. On the southern side of the Nay Pyi Taw Airport – and actually within the bounds of Bago Region – there is a dedicated industrial estate at the town of Yeni, eponymously called the Yeni Industrial Township. This 2,000-acre zone (809.3 hectares) is only a few hundred metres off the old Yangon-Mandalay highway and provides large plot sizes, excellent transport links (including a rail line) and reliable electricity. Existing tenants include several large Chinese-owned garment factories. The southern township of Lewe is predominantly rural and less developed and provides an ample supply of potential labour for future factories.

FUTURE DEMAND Future demand in Nay Pyi Taw for both residential and office sectors is likely to be driven by government pressure, likely regardless of which political party is in power, to exert pressure on INGOs and United Nations offices to shift at least part of their operations to Nay Pyi Taw, with diplomatic missions likely to follow not too far behind. At present the UN agencies in the capital are nearly all headquartered in the Union of Myanmar Federation of Chambers of Commerce and Industry building but in future they are likely to overwhelm the facility and be inclined to move to a larger space. Many companies are likely to consider Nay Pyi Taw to not be worth the effort unless they have business with the government or other institutions already in the capital. However, businesses that work on a business-to-government platform will likely further cement their links in Nay Pyi Taw and might, in the relatively near future, have need or more sizeable, dedicated office space. As Nay Pyi Taw develops further the city could witness a tipping point where the entry of INGOs, companies and embassies lead to a greater move to the capital.

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DIPLOMATIC SHIFT FROM YANGON The current situation is that all embassies are officially located in Yangon despite the capital city designation being changed in 2006. Since this time the government has made occasional campaigns to persuade the embassies to move. The political climate in Myanmar was one justification for staying put but a more practical consideration is the lack of facilities, especially hospitals and schools that would need to be provided before expats would consider moving there with families in large numbers. The government has provided 120 plots of 5.7 acres each in a specially designated diplomatic zone in Dekkhina Thiri Township for purpose of constructing embassies but so far no activity has taken place. KEY OFFICERS OF UNITED STATES FOREIGN SERVICE POSTS

Source: Picon-Deed Research / United States Department of State Telephone Directory

Generally the move of embassies can take a considerable amount of time due to the bureaucratic nature of government operations and also the unwillingness to move from what are usually exciting cities such as Sydney or Rio de Janeiro to more soulless new capitals. It is expected that the relocation may practically take as long as 10 years from start to finish. Some countries are establishing liaison offices in Nay Pyi Taw as the precursor to an eventual full relocation. In general a move to a new capital is more efficient as many diplomatic functions need to be close to their host government and a move by some embassies may lead to others to do likewise given the better chance to build relationships with officials by being actually based there.

The most important take generally from countries eventually moving their embassies is that the majority of staff will be based in the new capital, even though

many large countries will also have a significant consular presence in Yangon due to it being the commercial centre of the country.

CONCLUSION Nay Pyi Taw is a story of increments: the military government surprised everybody by up and moving to the new capital, likely pleasing Yangon’s residents who no longer had to live with daily motorcades. Diplomatic missions and UN bodies have been extremely coy about relocating to Nay Pyi Taw but bit-by-bit the overall resistance to the capital is lessening. And in contrast to Yangon, Nay Pyi Taw offers some compelling advantages in terms of clean air and very light traffic. When international grade healthcare becomes available in Nay Pyi Taw along with better transport connections especially by air and rail, then perhaps more expatriate families will be more amenable to a move to the capital and Nay Pyi Taw can become a more organic city.

The Myanmar Real Estate Specialists

• Tailor-made research • Development advisory • Feasibility studies • Market entry • Valuation support • Plant & machinery valuation • Investment consultancy & brokerage • Office location services • Leasing support management • Residential services • Industrial & logistics analysis

Contact email: stuart.deed@picondeed.com tony.picon@picondeed.com www.picondeed.com Unit 1408, Sakura Tower, 339 Bogyoke Aung San Rd Kyauktada Township, Yangon

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