As the economy has boomed in Myanmar, costs for rent are skyrocketing, while widespread electricity shortages are hampering economic growth. While Myanmar has been one of the bright spots of news in recent months, there are risks going forward.
After decades of suppression, the country finally appears to be turning the corner and is serious about installing much needed reforms. As a result, sanctions have come tumbling down and a flood of foreign investors are flocking to the country, hoping to tap into one of Asia’s last true economic frontiers.
At the end of last week, Bruce Greenwald, the founding director of the Heilbrunn Center for Graham and Dodd Investing at Columbia Business School, sat down for a Fireside Chat with Li Lu, the founder and chairman of Himalaya Capital as part of the 13th Columbia China Business Conference. The chat spanned many different topics, Read More
Most of the economic development is taking place around Yangon, the once-sleepy capital of Myanmar. Up until recently, few western companies operated in the country due to sanctions. Chinese and Japanese investors have been present, but even most of their operations were low key. Before the lifting of sanctions, occupancy rates in some commercial buildings stood at a mere 60 percent. Now? Good luck finding a place to set up shop with occupancy rates standing at some 95 percent and rent prices spiraling out of control.
To be blunt, there’s a dearth of high-quality office space in Yangon, and while ground has broke on numerous projects, the time to build in combination with long wait lists will ensure that rental costs will remain high for years to come. Currently, office prices are rivaling major international cities, such as Paris and Manhattan, renting at $105 dollars per square foot per year. In some cases companies have resorted to renting and converting living quarters, including large houses, into office space.
Beyond office space, other costs are surging. Rentals for the upscale apartments preferred by expats are skyrocketing. Most of the living space in Yangon is simply not up to the standards expected by international workers and those apartments that do meet requirements are in high demand.
Still, construction is ramping up in an effort to meet increased demand. New construction likely won’t lower prices in the market as most office space has already been leased at current market rates to companies on the wait list. Further, costs for building materials, such as bricks, have been surging in recent months.
Beyond rental prices, other parts of Myanmar’s infrastructure are being strained. For example, the country has an old and dilapidated electricity grid that was barely able to supply enough electricity before the economic boom. Now, rolling blackouts and a constant shortage of electricity is the norm for many people and businesses. Violent protests broke out in 2012 over the issue and if international companies find themselves unable to get needed electricity, the attractiveness of Mynamar will begin to wane.
Western countries that may have been hoping to enjoy low costs in Myanmar, in line with costs in Laos and Cambodia, will be sorely disappointed. Further, tight government control and interference means that new property will likely be developed slowly, with licenses being difficult to obtain.
And if Myanmar is not able to quickly increase the capacities of its infrastructure and provide foreign firms and workers with the resources they need and want, it may hamper economic growth. While Myanmar has ample upside due to its large deposits of natural resources, the country must increase efforts to make it an attractive international investment destination.
Soon, the “honey moon” period will wear off in Myanmar and investors will begin making increasing demands.