Increases in Cambodia’s GDP and foreign direct investment (FDI) are helping to drive the supply and demand in the Kingdom’s office sector, according to a new report from global property agents CBRE.

The report says demand from international occupiers looking to enter the emerging market of Cambodia remains strong.

Increasingly, international businesses are favouring Cambodia, in particular Phnom Penh, mainly due to the stable economic growth and the integration with the ASEAN Economic Community in 2015.

The office market remains positive with the imminent arrival of the Vattanac Capital, Cambodia’s first international Grade-A office building, which is now due for completion later this year. This will set a precedent for future development, and bring further confidence to the sector.

To meet demand, a further 34,000 square metres of newly completed, grade-A office space is likely to become available this year, CBRE says.

Grade B office space is also set to increase by 15,000 square metres, with the completion of GT Tower increasing the current supply by 30 per cent to 190,000 square metres.

Occupancy rates are positive, with the majority of medium-sized Grade B/C multi-tenant office buildings enjoying 90 per cent occupancy. The current office vacancy rate across the market for multi-tenant purpose-built office buildings stands at 18 per cent, or 34,200 square metres of available space.

The majority of office space in Phnom Penh is still low-grade space in terms of international standards.

More established businesses continue to drive the market through expansion requirements, generally taking additional space within the existing office, or relocating in search of larger floor coverage.

Transactions in the 50-100 square metres range will continue to dominate, much as they did in 2012, especially for logistic and manufacturing companies from countries such as Korea, Japan and China, as well as other areas of Asia.

Due to the high demand, and the slow release of new office development, landlords at the mid- to high-tier end of the market are reportedly taking a bullish attitude on renewals and taking on new tenants.

Tenants are also motivated by good incentives offered for space of 500 square metres and over.

The prime-rent index across Phnom Penh shows an annual growth of 3 per cent, with further prime rental growth expected toward the end of 2013.

Whilst well located grade-B offices have enjoyed a 10 per cent annual increase, Grade-C space has declined slightly, with a number of tenants looking to improve their professional image by relocating into higher quality offices.

Across all office grades, the current market average rent is equal to $15 per square metre, although this is set to increase with the launch of the first Grade A office space increasing the average rents.

In addition, parking spaces are becoming increasingly favoured by new tenants, as they require additional space for their employees. Landlords also benefit as it provides an additional income-stream of up to $160 per space.