A lot has been shared about how COVID-19 will shift the landscape of tourism and retail. But not a lot has been said about real estate, which arguably has a bigger impact on economic growth due to the industry’s importance to the businesses that operate within the aforementioned sectors. After all, most businesses need an office to operate out of.
Office spaces in the Kingdom are concentrated in Phnom Penh, particularly in the districts of Daun Penh, Chamkarmon, Boeng Keng Kang (BKK), and 7 Makara, according to Knight Frank’s H1 2019 real estate report. During this time in 2019, the growing supply of office spaces available kept rental quotations at a flatline due to the increasing supply; a supply expected to swell from 400,000 sqm to over 1 million sqm post-2021.
This coincides with CBRE’s Fearless Forecast 2020, an annual forum for real estate professionals, which expects a softening of office space rentals throughout the year due to a rapid influx of new office spaces, save for Grade A units.
While the growing supply of office spaces has stymied the growth of rental quotations, the outbreak of COVID-19 has certainly tipped the market over the threshold, according to the latest report released by CBRE earlier in April 2020. The already-hard-to-fill office spaces have become even harder to fill as fears of the contagion negatively affect the confidence of many businesses.
Consequently, a growing number of companies in the Kingdom have opted for a work-from-home scheme as a compromise approach to keep business running while limiting the risk to their workforce. Prior to the outbreak of COVID-19, work-from-home schemes have been on the fringes of work setups, but it is likely to become more mainstream the longer the pandemic persists - a creeping challenge to office developers throughout the world.
The office space market in Cambodia, however, has been facing other challenges prior to the outbreak of COVID-19. Part of the oversupply factor is the rise of strata-titled offices in Phnom Penh. These new office leasing schemes work similarly to strata-titled condominiums where each unit or floor space has a different owner. While this scheme is still in its infancy, it does present itself as an alternative to tenants looking for more flexibility.
Co-working spaces, popular in Western countries, have also taken root in Phnom Penh. Young entrepreneurs have been increasingly attracted to co-working spaces as it offers a good means for capital growth and affords small businesses the flexibility they need to operate as opposed to strict and long-term commitments from conventional offices.
Rent growth is correlated with job growth across global office markets. The office market will likely not see either one in the short-term, at least. COVID-19 has shifted the work setup paradigm, and if office developers are to compete within the shrinking market for tenants, adjustments to conventional lease terms will have to be made.
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