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Industrial real estate could be safe option against market uncertainties

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Maxem Property’s Saraboth Ea on diversifying real estate. Victoria Mørck Madsen

Industrial real estate could be safe option against market uncertainties

Some developers who are retracting from the already crowded residential and commercial segments are seeing the potential in industrial development as a hedge against a potentially stagnant residential market from 2018 onwards.

For developers and investors skittish at the prospect of a residential market bubble, the industrial segment looks to offer a safe haven despite recent policy changes.

“Their concerns are valid,” says Saraboth Ea, managing director at Maxem Property, “as estimates currently put new supply in the residential condo market at between 20 to 25 thousand units in the next two years with rental demand and projected occupancy still uncertain.”

Although around 150 garment and footwear factories closed down in Cambodia in 2015, there are still more than 500 active factories using around 5 million square metres of land in Phnom Penh alone, said Sung Sina, director of the valuation department at Bonna Realty Group.

In recent times, the industrial real estate market has shifted to the south of the city in order to beat the land price rises in the more central districts of Phnom Penh.

“Manufacturing and [other] industries are shifting to areas further south of Phnom Penh as land prices continue to rise in what were traditionally manufacturing zones such as Stung Meanchey and Chom Chao,” Ea said.

“With the rising price of land in these traditional manufacturing areas, owners of the land upon which these factories sit are looking at new opportunities to develop mixed-use residential and commercial projects, as the middle class expands outward for affordable housing options.”

As leases get more expensive and space becomes sparser over the next few years, more factories will be shifting operations further afield to industrial zones and, in particular, Special Economic Zones along National Roads 3 and 4.

Cambodian Valuers and Estate Agents Association (CVEA) president Kim Heang agrees, saying National Roads 3 and 4 offer direct routes to the port in Sihanoukville.

Heang also said that workers are much easier to recruit in these areas. “If your factory’s capacity to manufacture grows, you can easily increase and expand your factory without running into any unnecessary issues in these areas.”

“In these newer industrial zones,” Saraboth added, “factory owners have the option to take up space in existing facilities or request custom-built factories to suit their specific needs and requirements.”

New development sites provide facilities with sizes ranging from 3,000 to 100,000 square metres, with options to purchase long-term leases up to 50 years or a shorter-term lease of five to 10 years.

Alexander Evengroen, CEO of Key Real Estate and vice-chair of the Real Estate & Construction Committee of Eurocham said, “Road number 3 is the key for industrial development, and the host of residential projects being built in the outskirts of Phnom Penh will only support this trend. The success of these new residential and borey developments will attract more skilled people to the areas, instigating demand and supply for more industrial development.”

“As new money enters this area of the city, areas around road number 3 are also seeing increased demand for shopping and retail space, and this will generate opportunities for investors and developers to build, sell and exploit commercial projects too.”

Ea also noted that land acquisition costs per area, moderate to high construction costs, and higher project risks come accompanied with residential construction.

“With industrial development, these three factors are significantly reduced, mitigating overall risk,” he said.

“However, investors will likely get a lower yield on an industrial project but potentially more stable cash flows from longer term leasing tenants.”

Furthermore, Cambodia’s industrial market is also diversifying towards cleaner and smarter industrial production facilities.

“With some new modern facilities like the eco-friendly concept being developed by Le Urban Eco Park, factory owners can also save significantly on energy costs, and operate a more sustainable, green, and environmentally friendly business,” Ea said.

James Whitehead is director of content at www.realestate.com.kh

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