One of the leading Real Estate movers of Cambodia, Knight Frank, has once again released a Cambodia Real Estate Highlights report for the 2nd half of 2016. Ross Wheble, Country Manager of the firm, gives us an overview of what changes occurred and what we might expect in the near future due to these changes, especially in Phnom Penh.
Wheble sets the tone of the report by saying that even with international events such as Brexit and the Trump win and “whilst the global economic outlook is one of short to medium-term volatility, Cambodia continued on its upward trajectory underpinned by investment from China as part of its ‘One Belt, One Road’ policy.”
But what else has been going on in the Cambodian Market? Wheble takes a look into both commercial and residential sector to give you the answer.
The office sector will benefit most from the One Belt, One Road initiative of China. Knight Frank reports that outside investment from this initiative will provide a “steady inflow of Chinese companies that are likely to occupy space in purpose-built offices.” And the future supply of offices is projected to increase to around 77% by 2020.
For now though, average rental prices were consistent at $18 per sqm a month in the 2nd half of 2016. This is the average measured by Knight Frank across all office grades. The report also mentioned that “Prices for stratified office units remain flat from US$2,100 per sq m for Grade B units to as high as US$4,500 per sq m for Grade A units.” Asking rental prices are not expected to stay consistently flat in the short-term as many major office buildings are anticipated to come to completion.
No significant change in demand is expected to happen in the office sector for Grades B and C-type units though. The report indicates a steady occupancy level of 85% and above. However, the demand for unit with a size ranging from 100 to 200 square meters for $15 per square meter a month remains the highest.
The supply of retail spaces reached 138,154 square meters across 11 retail malls. Anticipated retail projects weren’t completed on time. So, there are no significant changes that were seen in the sector. Rental prices remained the same since the opening of major retail establishments such as the Aeon Mall and the retail podium of Vattanac Tower. The occupancy rate remained high as well at 90%.
The report also mentions that “Prices are likely to fluctuate closer to 2018, following the completion of large projects such as Parkson City Centre and Aeon Mall 2.” But this may change not soon after as an increase of 196% in the sector’s supply is expected. The Aeon Mall 2 alone will add around 70,500 square meters of retail space.
This surge of supply may change where retailers will go. The report says, “Retailers will likely continue to create stand-alone outlets in popular residential areas, as high-rise residences go up in areas such as Chamkarmon and Toul Kork, which will allow them to tap into a growing residential community.” And while it is too early to tell, Knight Frank says that the scenario is a real possibility.
Serviced Apartment Sector
Currently, there are 4,214 recorded units available in the market right now, with mid-tier apartments continuing to form the majority of the serviced apartment supply. The average rental price of high-end developments start from $20 and can go all the way up to $33 per sqm per month. Meanwhile, the average rental prices for mid-tier units in Q4 of 2016 went between $9 to $18 per sqm per month.
The occupancy rates for some established serviced apartments have remained constantly high. This is due to strategically allocating the units for short-term stay.
However, Knight Frank predicts the serviced apartment sector will experience a downward adjustment period after new serviced apartments and large condo developments reach completion. They estimate 1,053 more serviced apartment units to come up by 2018. But they clarify that “increasing competition with the entry of better quality projects will benefit the industry as a whole by providing more options for tenants while lifting the overall industry standards.”
The existing and recorded condominium supply for Q4 2016 is 3,033, where 54 projects were added during the 2nd half of the past year. According to Knight Frank, “Trusted local developers that were previously exclusively developing borey housing are now crossing over to the condominium sector integrating more affordable high-rise residential components within their existing landed projects.”
But similar to some of the retail projects being constructed in Phnom Penh, none of the condominium sector’s 3,184 monitored units that were scheduled for Q4 completion were actually completed. According to the report, 2% were put on hold and 98% rolled over to 2017. The good news is that 46% of the newly launched projects have already been sold as of late last year. This is a 30 percentage point increase compared to the first half of 2016.
The report states that “higher sales rate of newly launched developments can be attributed to developers setting lower prices, removing barriers to purchase by adopting more flexible payment schemes and eliminating down payments.”
Knight Frank says that as a result of this, more projects are expected to enter the market by 2020 as confidence in the sector rises. 72 projects with 25,544 units to be exact. And despite people’s preference for mid-tier projects, it looks like 70% of the future supply is going to come from high-end condominiums. This is in contrast with the current situation where the report indicates “Many of the projects launched in H2 2016 targeted the mid-tier category with units on offer between $1,200 to $1,800 per sqm.”
The market has had its ups and downs, yet there are still hopeful professional predictions that have been put out there in the Knight Frank report. And there remains to be great possibilities of success in investing if you know how to interpret the data and play your cards right. Download the full report click here!