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Feeling the squeeze

Feeling the squeeze

REAL-ESTATE-3-Story-1.jpg
REAL-ESTATE-3-Story-1.jpg

With firms crammed into villas and shophouses, Phnom Penh faces a shortage of decent office space – and ridiculous rents

Photo by: TRACEY SHELTON

Finding a quality, affordable office space was a bit of a challenge for advertising executive Andrew Martin.

LIDA Leang is in the business of gently breaking bad news to eager businesspeople.

The receptionist fields a relentless stream of inquiries about office space in the Intelligent Office Centre. Cambodians tend to walk in off the street, while Japanese and Korean businessmen get in touch by phone.

Either way, her response is always the same: "We are full. Try again next year."

Most of those in the queue are likely to find that space in the six-storey commercial building on Monivong Boulevard will soon be beyond their means. The US$15-per-square-metre rent existing tenants are paying is already a thing of the past.

Phnom Penh has eight major

office buildings. All are near full occupancy, leaving most businesses to set up in converted colonial villas, hotels or refurbished shophouses.

Try to find it

Emboldened by the shortage of space and the seemingly limitless demand, owners of commercial space are raising their rates. Lida Leang expects new tenants will be asked to pay as much as $25 a square metre.

Landlords in the Phnom Penh Centre, for instance, are now asking $14 to $20 per square metre when leases come up for renewal-double the $7 per square metre they were charging last year.

They appear to be getting it, too, even though the sub-C grade building is not purpose-built for office use. The relentless sound of hammers is the work of builders converting university classrooms and old apartments into some of the city's only new office stock.

Forget the price. if we can find a proper space, we are willing. It's not a matter of price but of availability.

Toby Dodd, general manager of Cushman & Wakefield Vietnam, says the market is running away from reality.
"Current office rents being quoted by landlords are about 100 percent overpriced compared to other regional markets and the quality of accommodation," he said.

It was too early to tell whether tenants would be willing to pay such high rents as many were still locked into rates of $10 to $15 or less, he added.

Landlords should take heart from Senaka Fernando, director of PricewaterhouseCoopers in Cambodia and chairman of the British Business Association. "Forget the price," he said. "If we can find proper space, even if the price is a bit more than other countries in the region, we are willing. It's not a matter of price, but of availability."

Major new developments are in the works to meet this soaring demand, including the 45-storey Sun Wah Financial Center and the 52-storey International Financial Complex. ANZ Royal and Vattanak Bank are also building new headquarters in the capital, as is Canadia Bank. Its 32-storey headquarters on Monivong Boulevard is optimistically scheduled to top out in 2009, making it the only major development likely to be ready any time this decade. It is already reportedly in huge demand, at asking rates of $35 a square metre.

Andrew Martin of the Bates 141 advertising agency found out just how short of good office space Phnom Penh is. The agency was forced to move from "the coolest office space in the country" when its spacious villa on Street 178 was sold last year.

When the new owner raised the rent and refused to offer a lease beyond 18 months, Martin decided to leave the company's base of the last 15 years and find something new.

He saw more than 40 locations over six months. "I looked at everything," he said. "Shops, villas, office buildings, old schools." Real estate agencies weren't much help. "A lot of them didn't get it," he said. "They kept coming back with space that was double our budget."

A big red tomato

He finally settled for space on the third floor of Norodom Boulevard's SSN building, signing a lease last year before rents started going crazy. He also managed to intervene before the landlord had time to finish outfitting the space.

Martin took control of the interiors, vetoing the glass office divides the owner had planned and going, he said, "with an art gallery concept".

The architecture was a major drawback. "You know how hard it is to design an office when you have pillars every six metres," he said, adding that the owner's choice of color also offended his sensibilities.

"I didn't realise it was going to be green," he said. Worse yet was when fellow tenant Best Specialized Bank received permission to paint its logo - a large red tomato - on the façade.

Martin declined to say how much he was paying, but said he negotiated "a very good deal" with the landlord. At the time rentals in the building were $15 per square metre, according to the building's owner, Cambodia Priority Property Investment Co Ltd. Today, space is going for $25.

Prospective tenants had better move fast. Only 300 of the building's 7,000 square metres remain on the market.

The Vtrust Office Centre,  located on 2,500 square metres on two floors of the Parkway Square Building, is also at full occupancy. Rents are $10 a square metre, plus VAT, but the minimum lease of two years is causing trouble. "We would increase the rentals but all our clients already have contracts," said marketing and rental manager Hon Mengheang.

Tight supply is playing right into the hands of The Secretary. With electricity, internet and basic secretarial services included in the $350 monthly rate, the simple but stylish serviced office is perfect for new arrivals, enabling them to start work from day one while they look for something more permanent.

Many businesses simply settle for sub-standard spaces, managing director Kevin Britten said. "The reality is a lot of people rough it. They don't expect more ... so they don't demand more.

"A lot of people are stuck in a romantic view of Cambodia.... People that don't know the place still expect to hear gunfire, not the sound of construction"

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