Written by Owen Williams, Surveyor, CBRE Cambodia
Phnom Penh property market remains resilient with the serviced apartment sector thriving in 2012…
The office sector has shown signs of growth as occupancy rates have continued to increase. New supply onto the market in 2012 has been limited but this is due to change in 2013 with the launch of Vattanac Capital. The new supply in 2012 was low due to the low number of projects starting during the global economic crisis in 2009 and 2010. The majority of the market is still Grade C standard office with a 57% share of the current supply. Grade B/A currently has a 43% share.
Overall there is a strong demand for serviced apartment space in Phnom Penh and with strong economic growth predicted in Cambodia this demand will be maintained. The success of the new serviced apartment complexes with regards to occupancy reflects this continued demand, as well as the increased occupancy of the older properties. The market will remain competitive and this will mean rents at better and newer apartments buildings increasing as well as rents going down in older developments.
The number of mid range brands entering the market has increased considerably in the retail sector in 2012. A large number of these brands were associated with food and beverage outlets and a prime example is Costa Coffee. Of these brands entering the market most have chosen to occupy standalone retail outlets. This has been in part because of the lack of availability within the main shopping malls but also because of the quality of the space found in some shopping malls.
The demand for condominiums is still not as high as it was pre global financial crisis but the market has improved in the last year. Monthly absorption is increasing with most projects disposing of 2-4 units per month on average. The percentage of units sold has increased by 5.8% across the market year-on-year.
The risk of an impact of an economic slowdown in the US and EU, the two largest destinations of Cambodia’s key garment and textile exports, have not so far materialized. Garment exports rose 9.9% to $3.44bn in the first nine months of 2012, up from $ 3.13bn a year ago. Trade and investment relationships with Vietnam, South Korea and Japan are also strengthening.
PHNOM PENH’S LEADING MARKETS – CBD TAKING SHAPE
Occupancy levels on across the market have increased Y-o-Y. The market currently has a vacancy rate of 19% with a net monthly absorption rate of approximately 680sq.m per month in 2012. Phnom Penh as a whole is starting to see large scale MNC tenants enter the market; Siri Tower, Phnom Penh Tower and Canadia all had a single tenant new to the market take up a whole floor or more.
Rents across the market have increased on average by 7.5% for quoting rents, this has not however always moved on achieved rents on a proportional basis. Rental rates range from US$11/sq.m to US$33/sq.m including management fees.
Current supply for Phnom Penh as a whole is circa 190,000sq.m (GIA). In the previous year of 2011 office supply had risen by 18.8% from the previous supply of 160,000sq.m due to the completion of Siri Tower and Phnom Penh Tower. Supply in 2012 has increased by 5% with the launch of Yellow Tower. A further 34,200sq.m GIA of office space will be launched onto the market with the completion of Vattanac Capital in Q1 2013. The office market supply is set to increase by 18% once the project is complete in 2013. Supply will increase by a total of 27% during 2013.
CBRE is starting to see current villa occupiers looking to relocate to purpose built office space to improve professional image and to maximise the efficiency of rented office space.
Current supply for purpose built retail space within Phnom Penh stands at approximately 150,000 sq.m GIA equating to approximately 86,000sq.m NIA. Shopping centres dominate the supply of purpose built multitenant retail buildings. Phnom Penh has developed considerably in the last ten years since the opening of the first shopping centre Sorya Mall in 2003.
The supply is forecasted to increase to 350,000sq.m in the next four years. Vattanac Capital is launching approximately 5,000sq.m of net leasable area in early 2013.Current demand has shown that most new entrants to the retail sector have opted for standalone retail outlets. However, this is mainly due to the lack of high quality well managed shopping centres currently on in the market. Vacancy rates in shopping centres is relatively high at 23.9%.
Rents in the more established shopping centres have stabilised in recent years on average ground floor rents are achieving $40/sq.m. GDP per capita between 2006 and 2011 increased by 70%. This increase has created an emerging middle class within Cambodia that now look to become the main consumers of goods on the market.
In 2012 637 new condominium units have been launched onto the market equating to a 29.25% increase in supply. The majority of the units launched onto the market are one bedroom units equating to a 50% market share. On average one bedroom units range from 56sq.m to 68sq.m, two bedroom units range from 90sq.m to 96sq.m and three bedroom units from 137sq.m to 140sq.m.
In 2011 60.8% of the units in the market had been sold, including the new projects launched. In 2012 this sales figure has increased by 5.1% to 65.9%. All of the projects provide ample parking, with most of the new development launched providing parking on the first floors above ground level. All of the developments have swimming pools and gymnasiums.
Average sales price per square for the whole market in 2012 was US$1,460/sq.m. The market is set to get highly competitive as original speculative investors look at disposing of assets.
The market is still heavily dominated by condominiums units being sold off plan to speculators. This has resulted in completed condominium projects having a low physical occupancy rates. The quality of most products that have been launched onto the market is still low. Current supply is lacking a high end completed product in a central location that is high in demand. There is presently a lack of very high end condominiums or units located in the centre of the city, and, therefore, there is high demand in this part of the market.
In the last 12 months seven new good quality serviced apartment complexes have opened across Phnom Penh, the majority of which are located in the south of the city, particularly around the Boeung Keng Kang I area.
CBRE have noted in the last year that there has been an increase in the number of Japanese expatriates coming into Cambodia. This can be seen by the increased number of Japanese companies entering Cambodia and opening up offices in Phnom Penh such as the Bank of Tokyo, Mitsui and Itoshu.
Occupancy rates range from 81.5% to 100% in 2012, with a number of properties obtaining 100% occupancy. Overall the serviced apartment sector has seen an increase year on year with occupancy currently at 90%. This is a strong indicator that there is still considerable demand from new arrivals into Phnom Penh for serviced apartment accommodation.
Rental rates across the market have largely remained stable as the increase in supply has been in line with demand. Serviced apartment rental rates range from US$11/sq.m to US$25/sq.m compared to apartments with rental rates of US$8/sq.m to US$19/sq.m.
The office market is set to increase by 27% in 2013. Vattanac Capital alone will account of 18% of the increase in supply. With the launch of Vattanac Capital Phnom Penh’s CBD is starting to take shape close to Wat Phnom. Other developments such as Hongkong Land’s Embassy Center and Acleada’s new HQ are also planning to start construction in the area in 2013. Rental rates in 2013 are set decrease in lower Grade C office buildings as tenants start to relocate into better higher grade office space.
The retail market is one of the sectors with the highest amount of demand. New large scale retail space is still a number of years away from completing. New supply in 2013 is limited pushing new entrants to the retail market in Phnom Penh towards standalone retail outlets. Rental rates for retail space in prime locations within well managed multitenant buildings is set to increase. Without improvement in management existing shopping centres are unlikely to be high in demand.
The condominium sector will see a large amount of condominiums launched back on the market in 2013 as projects that sold extremely well off plan pre-2008 are now complete. Demand for condominiums is increasing and as the city expands with land prices increasing the domestic market will start to look towards condominiums. Pricing will become more competitive but the market normality of buying off plan is set to remain.
The serviced apartment market is one of the strongest real estate markets within Phnom Penh. Although a large number of units were launched onto the market in 2012 the sector grew in strength with occupancy levels increasing. 2013 is set to continue like 2012 with supply increasing significantly in BKK. The main competitor to this market will be buy-to-let owners of completed condominium projects looking to gain a return from their investment. As supply increases and demand is maintained rental rates are predicted to decrease slightly.