James Hodge | Associate Director | Professional and Office Services
CBRE Cambodia’s most recent Marketview provides insight into the movement of Phnom Penh’s property market. In this article we focus on the commercial sector to shed some light on recent developments within Phnom Penh’s dynamic retail and office markets.
The first quarter of 2017 saw a total of 17,000 square metres of new grade C office space added to the market, representing a 6 percent increase in the total space available in the market. Despite a fairly significant increase in total supply levels a significant amount of stock was absorbed, with occupancy levels reducing by only 0.2 percent over the quarter, down to 75.7 percent. The expansion of existing firms within their current office buildings, as well as relocations to larger properties contributed significantly to take-up levels.
Rents for office buildings were stable across all grades quarter-on-quarter, although they were in fact 0.7 percent lower than that recorded during the same period in 2016. This period of stability marks a change for the grade C and grade B sectors, with grade B’s growth period seemingly paused and grade C’s rent reduction path checked.
The office market remains robust with all grades seeing good levels of demand. Future supply is focused on the higher end of the market in the grade A and B segments and to some degree this suits the evolving nature of the sector where tenants are increasingly aware of providing their employees with higher levels of workplace satisfaction, an important element in retaining the best talent.
Meanwhile, the introduction of strata-title offices to the market represents a significant evolution on the horizon. Presently, there are 11 strata-title office projects representing approximately 150,000sqm of new supply under construction across the capital. 2018 is set to be a landmark year for strata-title projects, with more than 90,000sqm set to be completed. This is a new concept for the market and the multi-ownership profile presents a question mark about how management will be conducted and occupation achieved. Competition between different landlords within a single building may create opportunities as well as difficulties for tenants. A potential solution, especially in the instance where guaranteed rental yields have been offered to investors is for management and lettings to be co-ordinated by a central entity; however this may conflict with the aims of owner-occupiers.
The retail market is also set to evolve rapidly in the coming years, with supply forecast to double by the end of 2019. By the end of 2017 retail supply will have exceeded 255,000sqm, a growth rate of 22 percent on supply levels seen at the end of 2016. By the end of 2019, CBRE Cambodia predicts that supply in the retail sector is due to expand to over 580,000sqm. 2018 is to be a watershed year for new supply, particularly for shopping malls when the likes of AEON 2 are due to complete.
New supply is needed in the retail sector due to the relatively small amount of development that has taken place since AEON Mall opened in 2014, as a result of which retailers have struggled to locate suitable sites for expansion. Further modernisation and development within the retail sector will provide consumers with greater choice and breadth of experience, important factors for Cambodia’s growing middle-class.
Prime retail rents were also stable over the first quarter, although shopping malls did see a slight reduction of 0.9 percent compared with Q4, 2016, down to an average of $31.10 per sqm per month. Aging retail centres continue to be the primary source of rent reductions as they seek to compete with modern international grade space which presents a more attractive environment to both retailers and shoppers.
The most common stores within Phnom Penh’s shopping centres are from the fashion and accessories sector, which make up approximately 27 percent of stores, the food and beverage sector is second with 21 percent and entertainment third with 14 percent. The make-up of the city’s shopping centres reflects the preferences displayed by consumers, particularly those from the expanding middle class.
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