The ASEAN integration at the end of this year is moving closer, but there is still no sign of the often touted professional foreign workforce streaming into Phnom Penh to meet the supply in the property market.
Consequently, real estate experts correct their assessment of the demand for high-end rental spaces – with supply increasing in numbers – for when the calendar switches to 2018.
Expecting a rather competitive market for rented condos and apartments, new investment decisions outside the expat dominated luxury segment seem to be in order – or drastic means of renovation have to aim to make bottom of the barrel apartment buildings competitive in the luxury segment again.
Seng Bunna, director of Bunna Reality Group, said that the apartment market is already feeling the competition due to the increase of condo supply in this Cambodia.
“This happened just as I thought it would because if there [is no high influx of foreign professional workforce] after the ASEAN integration, apartment building owners will have a problem with a lack of residents in those buildings,” he said, adding that empty apartment buildings will incur a lot of fixed costs through administration and management which would not be covered by sufficient occupancy – a risk that is more imminent to apartment buildings than to condos.
According to Ann Thida, senior director of CBRE Cambodia, apartment buildings – serviced or un-serviced – belong to local owners who rent out apartments to foreigners (around 95 per cent foreign occupied) who stay on an average of six months.
Condos, however, are purchased primarily by foreign investors who keep them to sell with increased value or rent them out to generate a return on investment.
When condos are rented out, they compete with apartments in the high-end rental market – a phenomenon that is expected to take effect in Phnom Penh’s property market.
Last year, as stated by CBRE, the occupancy rate for apartments decreased from 90 per cent in the middle of 2014 to 70 per cent at the end of 2014, as the total number of apartments available increased to 5,797, the latest figure stated by the real estate company. However, those rates recovered to 80 per cent occupancy at the second quarter of this year (as previously reported by Post Property in June).
Thida told Post Property that due to the increase in apartment supply, rental prices have stagnated, and she even expects them to go (slightly) down in the future with more condos going online and being made available for rent, especially by 2018, when at least 10,000 new condo units are scheduled for completion.
“In three years time, market competition will be about quality,” she said, and added that in order for developments to compete, they should “target local people and not aim for the foreigners.”
Nevertheless, real estate investments, she said, are still attractive in office and retail space, as well as in industry and lower priced residential property catering to local demand.
She believes that overall the occupancy rate for apartments will settle at a healthy 90 per cent with the current projected supply.
Other experts see that the oversupply is already having consequences. Like Seng, Kim Heang, general manager of Khmer Real Estate, believes that empty apartment buildings will continue to struggle. While condos will have set the tone for quality, the race will be on to fill vacancies with modern standards at affordable prices.
“Until now, apartment rent fees are staying stagnant because the supply has surpassed the demand due to the fact that all condos or apartments that are 20 to 30 stories high are up for sale and rent. Buildings that have been built 10 years ago are facing a problems because new, more modern condos and apartments are rented for the same price,” he told Post Property.
He went on to say that in three to five years, unsuccessful apartment owners will demolish their old buildings to make way for newer buildings to keep up with these standards, especially in Boeung Keng Kong.
“Investors have to be very strong to be able to stay in the market. Since the supply of apartments will be greater than the demand, only the best can stay, while the lesser quality apartments will have to face demolition.
Additional reporting by Julius Thiemann