Phnom Penh’s Condo And Office Market As Seen By Industry Experts

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Representatives from leading real estate agencies and online portals with operations in Cambodia discuss the condo and office markets in Phnom Penh, and share their opinions on other key property topics.

B2B: What’s your opinion of the condo market in Phnom Penh? Are condos a true value proposition?

Thida Ann, Director, CBRE Cambodia: Most of the buyers are overseas buyers and speculators seeking capital growth. It is a bit early for Cambodians to live in condominiums; so far, there is only a small group of Cambodians, those who have lived abroad, that prefer staying in condominiums. Price is the main factor when Cambodians decide to buy. Developers should target their client first before developing. Affordability seems key in the Cambodian market.

David Murphy, Managing Director, IPS Cambodia: The Condo market in Phnom Penh has and is growing exponentially. The growth has been fuelled by foreign buyers and this presents an issue in the value proposition moving forward as these purchases are made as investments, not owner occupier purchases. This means a significant spike in available medium to high-end units coming onto the rental market over the next three years. From the investors’ perspective the value proposition is based on the time frame to lease the property and at what value. We are experiencing first hand discounting on the rental rates of new condos to attract tenants. Where condo units are achieving lower than expected rental returns then this, of course, has a negative impact on the capital growth projections. Lower rental yields coupled with continued supply spikes will have a negative effect on capital growth on these units in our opinion.

Terry Blackburn, Managing Directors of Awards and Publications, PropertyGuru: All property markets are cyclical, and in Cambodia we expect to see a lot of growth in the next 3-5 years, including Phnom Penh’s condo market. Maybe it will slow down in a few years, but there will certainly be a new wave of developments after that. There wasn’t the volume of projects to have our own awards programme in Cambodia in the past, but that’s obviously changed now as we had seen with the success of the Cambodia Property Awards, which will hold its second edition in February 2017.

Thida-Ann-(CBRE)
CBRE’s Thida Ann says that most condo buyers are overseas speculators

B2B: There has been a lot of talk recently about the growth of office space in the city. What’s driving this growth, and what’s the outlook for 2016?

James Padden, Surveyor, CBRE Cambodia: Exchange Square will be completed in Q4 of this year and has been garnering strong interest in Phnom Penh and also regionally, as it is only the second Grade A building following the completion of Vattanac Capital in 2014. Exchange Square will complement the ongoing segmentation of the office market. Previously there has been limited quality office stock and this is now changing with the likes of Exchange Square really addressing concerns over safety and specification by delivering a product that matches multinational occupier expectations. Growth is been driven fundamentally by Cambodia’s strong economic performance. CBRE is seeing demand coming from existing businesses growing their operations and taking more space but also, and equally importantly, from multinational companies entering the market for the first time. This trend demonstrates that Cambodia is now being taken very seriously as a market and many companies are seeing now as the time to enter. This leads to the strong demand for office space we are seeing today. I think through 2016 and over the coming years this trend will continue with the move towards ASEAN integration inducing countries within Southeast Asia to expand regionally for the first time out of their home markets.

David Murphy: Historically there has been limited investment in high-end office space here in Phnom Penh, with most offices consisting of modified villas and renovated shophouses. The success of Canadia Tower followed by Phnom Penh Tower has emboldened developers to invest in office space projects. The Cambodian economy continues to expand and is no longer ignored by international firms. We see firsthand how international firms commence here with an agent office which quickly expands to a country office presence as the products and services these firms are selling prove to be successful. This will continue throughout 2016 and beyond as the Cambodian market continues to be identified as a growth opportunity for firms struggling in more mature, traditional markets.

Terry Blackburn: Cambodia’s economy is relatively open, making it easy to do business there, which is why the office segment in Phnom Penh continues to grow. Several high-end and luxury condo developments, such as Olympia City and the Taiwanese-backed TK Royal One along Russian Boulevard, have office spaces as well.

David-Murphy
David Murphy, from IPS Cambodia, says that international firms are no longer ignoring Cambodia, and starting to set up offices in the Kingdom

B2B: Real estate reports have highlighted an increase in prime residential developments located in non-traditional, secondary areas, such as Chroy Chang Va and Sen Sok. What is driving this change? Do you think it represents a significant industry trend or shift?

Thida Ann: Land prices in the CBD are expensive and supply is limited. Chroy Chang Va and Sen Sok have more availability for development and, moreover, land prices are still reasonable in these areas. The Chroy Chang Va peninsula is between the Mekong and Tonle Sap rivers, thus benefitting from some of the best views in the city and is highly attractive for residential development. The city is expanding and road infrastructure is improving, these are also the key factors for secondary area development.

David Murphy: There has been good quality developments built in these areas for a number of years, in fact some of the most successful developers have focussed their efforts in these areas for over ten years—take a look at the success of Peng Huoth at the recent Cambodian Property Awards. Demand from middle to high-income Khmers is driving the change; this is a great demographic to focus on because they are owner-occupiers first and foremost, and they now demand higher quality products from developers. Smart developers are meeting their needs. I personally believe the borey concept and low level mid-priced condos are the right products for these emerging suburbs. If I were to buy a luxury condo, I’d be prepared to pay a premium to be in the centre of the city than a discount to be trapped next to the airport.

Terry Blackburn: Building on the rapid growth of the sector in Phnom Penh, developers in Cambodia are broadening their involvement in secondary districts and satellite cities. OCIC has a multimillion project in Chroy Chang Va. Easy accessibility contributes to this trend. Other emerging areas like Siem Reap and Sihanoukville are now being serviced by boutique airlines, and that certainly helps in introducing these locations to investors.

These interviews have been edited for length and clarity