Myanmar is scrambling to put up more office blocks in Yangon, fearing that an acute shortage of office space in the commercial capital will put off foreign investors making a beeline to invest in the reform-embracing country.
Rental costs of limited office space in the city have jumped multifold, surpassing even rates of increase in New York and Tokyo due to pent-up demand.
The government is concerned that the rising costs and shortage, which may only ease in about three years as property developers race to implement new construction projects, could dampen efforts to lure foreign investors and speed up much-needed development after more than five decades of military rule.
"Foreign investors are flocking here, but we have limited office space for them," Presidential adviser Aung Tun Thet told RFA's Myanmar Service.
"This is a short-term problem, but we have to put up more buildings and release more land for construction in the medium- to long-term to cope with rising foreign investments," he said.
"If not, these foreign companies will have problems investing in Myanmar."
Yangon needs at least 8.7 million square feet (800,000 square meters) of office space to support the influx of foreign investors, according to Singapore company Yoma Strategic Holdings Ltd. (YOMA), financial news agency Bloomberg reported.
About 1.9 million square feet will be available by the end of 2015, compared with 600,000 now, the Myanmar office of international broker Colliers International UK Plc estimated, Bloomberg said.
Office towers Sakura Tower, FMI Centre and Centrepoint Towers, as well as the Traders Hotel, have been among buildings in Yangon that have attracted international companies seeking to rent office space.
Some of them have been charging rentals of between 250,000,000 kyat (about U.S. $25,000) and 400,000,000 kyat (U.S. $40,000) a month.
The exorbitant rates, coupled with a hefty 20-percent increase per year in some cases, have forced several companies and international government agencies to move out because they just couldn't afford them.
"Because of more demand and less supply, the real estate prices are just getting higher and higher," Khin Maung Than, the president of the Myanmar Real Estate Entrepreneurs Association, told RFA.
Demand will soar further as Yangon hosts a stock market later this year and more investments are pumped into the country, and as President Thein Sein increases the pace of reforms.
Yangon's development virtually stalled when Myanmar was under military junta rule and came under international sanctions.
"The real estate prices are skyrocketing because of the surge in both domestic and international investments," said Than Oo, vice-chairman of the Myanmar Real Estate Services Association.
Local investors are jumping into the speculation-driven real estate market because of quick profits.
"As office rentals and land prices are going to soar until the buildings under construction are completed, it would be good if the construction projects get adequate support for them to be completed earlier than scheduled," he said.
At least two 27-story buildings and four 28-story buildings are under construction along Kabar Aye Pagoda Road in Yangon’s Bahan township.
Tha Oo said while real estate prices rise by just 2-5 percent per year in Singapore or the United States, those in Myanmar are surging multifold, especially as foreign investors announce new infrastructure and other projects for implementation.
He cited as an example the Japanese-backed Thilawa Special Economic Zone, expected to begin construction in Yangon's Thanlyin Township in September.
Tha Oo said that although the government has revised foreign-investment laws to woo investors, companies are reluctant to pump money into Myanmar because the office space constraints are adding to other problems such as disruption of electricity and water supply and weak Internet connections.