The rise of Strata Titled Office Space in Phnom Penh

Feb. 16, 2017, 11:32 a.m.

strata titled office space With the Cambodia economy growing more and more each year, eyes from the international community are being pulled towards the Cambodian real estate market - and for good reasons. One of these reasons is recent legislation that allow foreign-ownership of strata titled office space. But what exactly is a strata title?  Strata refers to apartments being on multiple or different levels of the same building complex. Therefore, the strata title is designed and specifically drafted for apartment blocks or buildings with multiple levels - and co-ownership rights within these buildings. This concept originated in New South Wales, Australia, but later gained popularity in Cambodia after the “Law on Foreign Ownership” was introduced back in May of 2010. This law paved the way for economic growth as it gave investors an ability to penetrate the local market and, likewise, diversify it. Up until a few years ago, there were difficulties doing that for non-Cambodian nationals. Since the legislation, the Phnom Penh skyline has grown beyond recognition as property developers have identified the opportunity to bring foreign investors into the Cambodian market via strata title. Before the advent of strata titles, property owners were now allowed to divide their buildings into multiple private properties which they could sell separately with freehold ownership rights (hard titles). But now, post 2010, foreign investors are free to own up to 70% of these properties as co-owners, provided that they only buy private spaces above the first floor. Slowly, these titles expanded beyond just residential buildings and begun to cater to the international demand for office space in Phnom Penh - which is fast becoming an ASEAN business hub. For investors foreseeing a potential oversupply of condo in the capital city, buying office space seems a less risky alternative given Cambodia’s exponential economic growth. As James Padden, Commercial Agency Manager of CBRE Cambodia, puts it when he spoke at the first annual Real Estate Market & Outlook Conference 2016 (REMOC2016), “If we look at the Phnom Penh market, I think it's important to consider the context of what causes demand for office space. So, essentially, it's driven by commerce, trade and economic growth. Without trade and business growth, there's no need for office space.” He continues to say that Phnom Penh is particularly strong in that regard. Padden offers that, “From 2010 to 2015, we saw imports grow from 6.7 billion dollars to 11.5 billion - which is a 70 percent increase. Meanwhile, exports grew from 6 to 8 billion dollars which is a 33 percent increase.” Padden also mentioned that in terms of GDP, there was an increase by 7 percent each year and the GDP per capita appreciated from $879 in 2011 to $1,325 in 2016, an incredible 50% increase in a span of only five years. As proof of a growing economy and a successful real estate industry, there are now a total of 689 condominium units announced during the fourth quarter of 2015 alone. This brings in the number of off-plan condominiums launched over the course of 2015 to a total of 7,014. Yet - on top of this - as of 2015, there are also now 5 strata-title office developments in Phnom Penh up for sale to local and international commercial property investors. As the trend grows and furthers into its development, strata-titled office spaces will account for about 25% of total office stock by 2020 - according to CBRE’s research. A key benefit of the increase in strata titled office space and residential real estate in Cambodia is the practicality of the new legislation and the amount of time it will save for buyers and sellers transferring the actual titles to new owners upon the completion of new development projects. The process is relatively simple and, at the completion of this process, end buyers have full freehold property ownership rights over that space. Strata titled office space will also allow business entities to conveniently own the properties that are part of their business expansion infrastructure in the Kingdom, which offers superior control and legal protection for their business’ assets here. It is legislation like this that offers international firms the confidence they need to take their first steps into the Khmer market. As more and more strata-titled properties enter the Cambodian real estate market, both strata titled office space and residential units, international investors can see a smooth, safe and cost efficient  vehicle available to venture and expand into Cambodian territory.