Cambodia’s industrial sector continues to thrive

Cambodia’s industrial sector continues to thrive

7 Diamond island

Cambodia remains an attractive destination for industrial work, with a low inflation rate of 3 per cent and a low minimum wages of $80 per month, according to the CBRE Asia Pacific Logistics Rental Index.

The index showed a slight increase of 0.7 per cent quarter-on-quarter in the first quarter of 2013 compared to just under 1.0 per cent in the fourth quarter of 2012 as rental growth remained weak for a third consecutive quarter.

Annual growth also continued to decline, falling to 4.4 per cent year-on-year. Leasing activity slowed during the quarter as occupiers opted to stay in their existing premises.

In the first quarter of 2013, Cambodia’s textile exports reached $1.34 billion, compared to $1.14 billion in the same period last year, with export commodities including clothing, timber, rubber, rice, fish, tobacco and footwear. In 2012, exports totaled $6.14 billion.

Factory rents in most markets – particularly in China – continued to record steady gains in the first quarter of 2013, along with the improvement in regional exports. In Southeast Asia, factory rents are generally stable.

In Cambodia rents also remain stable as a continuation of trends seen in 2012, with prime locations in industrial zones commanding rents of $2.5 square metre. Rents in lower quality industrial zones, where units are of a lesser standard, offer rents of $2 per square metre.

CBRE says there remains a distinct lack of supply of industrial units as occupancy levels in existing industrial parks continue to rise. The development of new industrial units has been slow as a direct result of the economic downturn, and the associated impact this had on the construction sector.

However increasing labour costs in China and Japan continue to drive the demand for industrial property within Cambodia.

In particular, Japanese manufacturers are seeking opportunities to relocate operations to Cambodia. Demand for factory space mainly came from tenants in heavy industry. Manufacturers in the chemical and automotive sectors were particularly active in setting up plants in new markets, followed by companies in    the consumer electronics and industrial machinery equipment sectors.

The opportunities to relocate to Cambodia in search of better production prospects are supported by the improving infrastructure, in particular at the deep seaport of Sihanoukville.

The supply of industrial units will be a key influential factor in the growth of Cambodia’s economy, ensuring that foreign direct investment can continue to drive the markets. A number of industrial zones have been proposed for development within sites acquired for the purpose of satellite cities.

CBRE says these industrial zones will provide industrial units to the North, South, and North West sides of Phnom Penh, and will cover approximately 7,000 hectares of land in total. They will be supported by new infrastructure allowing further development of both import and export opportunities.

These developments are still likely to focus more on land disposals than matching market demand and supplying rental units. This can largely be put down to the low returns achieved from current rental prices.

Economic growth in Asia Pacific is expected to gather pace over the course of 2013 and reach around 4.8 per cent for the year as whole. The Cambodian economy has continued its high growth rate as real GDP growth has expanded to 7.5 per cent in 2013. Cambodia is one of the world’s fastest growing countries, and opportunities for foreign investors to capitalize on low production and labour costs will drive the industrial markets forward.

The demand for industrial rental units in prime locations remains high in 2013, as Chinese and Japanese companies look to relocate due to high production costs in their retrospective countries. However the increased demand is unlikely to be met by future industrial parks as the market is largely dominated by owner-occupied locally owned garment factories currently. CBRE predicts this will change as different manufacturers enter the market.

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