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Half year market review points to robust performance

Exchange Square is officially opened for business, with the commercial precinct offering 18,000 square metres of office space.
Exchange Square is officially opened for business, with the commercial precinct offering 18,000 square metres of office space. Photo supplied

Half year market review points to robust performance

Author – James Hodge | Associate Director | Professional & Office Services

After a frenetic first half to 2017, CBRE Cambodia takes a look back on some of the key market trends witnessed during the second quarter and what they might mean for the future of Phnom Penh’s real estate market.

The market remains underpinned by robust developer confidence in the health of Cambodia’s economy and the country’s future prospects. Across the country, approved investment into construction projects was up 64 percent on the same period for 2016, and a marked 300 percent up on Q1. Roughly US$3.66 billion worth of investment achieved approval across 737 projects. The majority of projects approved were within the residential sector.

In the industrial sector, 23 projects received approval in the second quarter, however little discernible movement has been recorded in rents for factories and warehouses. A distinct lack of speculative development beyond infrastructure, coupled with increasing interest from investors and occupiers bodes well for the industrial sector throughout Cambodia as long as capacity issues are correctly handled. CBRE analyse demand to be greatest for factories and warehouses measuring 1,000 – 2,000 square metres (sqm). Without speculative development, industrial occupiers face challenges in selecting Cambodia as a suitable location due to timeline constraints. A build to suit option often take between six and 18 months to complete, depending upon complexity and size. In addition, second hand stock is rarely of sufficient quality, especially for multi-national occupiers. Rents for ready-built industrial property within Special Economic Zones (SEZs) average $3.20 per sqm per month while build to suit can reach as high as $6 per sqm, largely dependent upon land costs and the specification required.

While the condominium sector has been the focus of much speculation, fears espoused during the past 12 to 18 months have yet to be seen in what has been a solid performance. Quarter 2 of 2017 saw 1,911 units delivered to the market, the most significant quarter for new supply in the market’s history and a definite bookmark to a noticeable evolution in Phnom Penh’s residential market. Total condominium supply reached an estimated 6,109 units by the end the second quarter. Overall, both asking prices and rents remained broadly unchanged. Asking prices in the mid-range and affordable sectors were the only segments to see a reduction, a marginal 1 percent fall. The modest price fluctuation in the lower tiers of the condominium sector are assessed to be as a result of developers shifting their focus to capture greater interest from local buyers, in particular the young, rising middle-class. Other developers continue to rely upon incentives, including substantial asking price discounts of as much as 10 percent in addition to less tangible benefits such as furniture and lifestyle packages.

The fact that rents have remained robust for condominiums in the face of significant new additions to supply speaks of the interest from tenants and confidence from developers in the quality of the properties delivered. However, CBRE anticipate a softening of rents over the course of the next 18 months as new supply ramps up.

For the commercial sector, the big news story during the last quarter was the delivery of Exchange Square, which added a further 18,000 sqm of office space as Phnom Penh’s second Grade A project. In the face of increasing supply, the occupancy rate for offices has risen 1.25 percent over the quarter, indicating the market’s ability to absorb additional space at this time. CBRE anticipates continued appetite from a range of sectors for good quality office space within the city centre, with demand coming from new entrants, expanding companies and those looking to improve the quality of their office. Both the availability of car parking and the need to ensure the office complies with health and safety codes are major considerations for many office occupiers in the present market.

For further information, including data and CBRE’s outlook for the retail sector and strata-title office market please visit www.cbre.com.kh to download a copy of our free Q2 2017 Marketview.

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