Supply of office space continues to surpass demand in Phnom Penh, adding pressure to an already shrinking rental market, with rates down nine per cent through 2011, industry experts said this week.

Increasing office space for rent in the capital last year resulted in cut prices, Keuk Narin, vice president of Asia Real Estate Cambodia told the Post.

“There’s an increasing number of competitors entering the office space market, which remains fairly small,” he said. “Prices will continue to fall because the supply is much more than the demand.”

Grade-A office space monthly rents peaked at US$21 per square metre last month, down from $23.5 in 2010, while the average occupancy rate through 2011 was about 68 per cent. Rental rates in B-grade offices are currently estimated at $11 per square metre, down from $13, with an average occupancy rate of about 80 per cent, Asia Real Estate Cambodia figures showed.

The declining rental prices, however, have started to attract a new influx of foreign companies, according to Keuk Narin.

“From the middle of 2011 we saw an increasing number of investors rent office space, hailing primarily from China, Singapore, Malaysia, Korea and Vietnam,” he said.

Among those commercial properties to benefit from the returning investors was Overseas Cambodia Investment Co’s Canadia Tower.

The grade-A office space, home to Cambodia’s stock exchange, experienced a five per cent occupancy increase in December, alone, according to Marketing Manager Pen Phyrun.

“The entry of a significant number of Japanese companies, investing mainly in agriculture, spurred the occupancy rate recently to reach 90 per cent,” he said, adding that occupancy started to grow in the second half of 2011.

Cambodia’s only other A-grade office space Phnom Penh Tower also experienced a growth in occupancy rate, with more than 50 per cent of the tower occupied, yet the number of new entrants slowed towards the end of the year, said Hong Youvoin, marketing manager of Hyundai Amco, the tower’s construction firm. He believes, however, that the tower will attract additional clients over the next 12 months.

“Our target is a 70 per cent occupation rate by the end of the year and, with the rate at which Cambodia’s economy is growing, we believe that this is achievable,” he said, adding that the average rent for office space is between $19 and $22.

While only about 34 per cent of Phnom Penh’s office space is A-grade, more competitively priced options have struggled with the slackening of demand in recent months.

Chheang Meng, general manager for Phnom Penh’s Bayon Building Center said he had slashed the asking price for office space to $9 per square metres, but the centre was still failing to attract interest.

“Last year, we reduced the price to $15 per square metre, but there was a lack of demand, so this year I reduced it further, but still nobody is interested,” he said. “We cannot lower our prices anymore.”

According to the Asia Real Estate Cambodia report total office space in Phnom Penh is currently 160,000 square metres, an 18 per cent increase compared to 2010. The report estimated that about 17,565 square metres, housed in two office buildings, will enter the market in the coming two years, accounting for 10 per cent of total future supply.

CBRE last year estimated that office space in Phnom Penh could reach 200,000 square metres in 2013 if the majority office stock slated for development in completed.