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Phnom Penh condo supply could make Sihanoukville the next hot spot

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Sales of newly launched condo units. Source: Knight Frank Research

Phnom Penh condo supply could make Sihanoukville the next hot spot

The latest report on Cambodian property will come as no surprise to those living in Phnom Penh; there is a dizzying amount of construction, and the predictions are for a slowdown in demand as more and more condominiums, offices and retail spaces become available.

International property consultancy Knight Frank’s latest report on the Cambodian property sector shows that in the first nine months of 2015, investments in the real estate and construction sector had a combined worth of $1.752 billion, compared with $1.540 billion during the same period of 2014, an annual increase of 13.8 per cent.

Knight Frank says 56 condominium developments are scheduled to be completed by the year 2020, comprising some 18,200 units, and condominium stock is expected to increase by approximately 641 per cent within the next four years.

The report notes that “there are growing concerns about a potential oversupply in the near future with many anticipating supply to quickly outpace demand.”

To offset this, developers are setting higher standards for their projects by putting more emphasis on exterior and interior design, building quality, and closer adherence to international standards. Also, most are offering incentives in the form of upfront discounts, timed promotions, furniture packages and guaranteed rental returns.

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Developers by country of origin. Source: Knight Frank Research

The report says that Taiwanese, Chinese, Singaporeans, Japanese and Malaysians are currently the main overseas investors in Phnom Penh.

By 2018, when the majority of the future supply is expected to arrive, rental prices in areas such as Chamkarmon, 7 Makara and Chroy Changvar are expected to fall. However, the report says the situation is expected to improve in the long term as land becomes scarce around the city.

Ross Wheble, Knight Frank’s country director, says “the age old adage of ‘location, location, location’ holds true; developments in prime locations will typically be the last to suffer during a downturn and the first to pick up in a recovery.”

Wheble also notes that “the extent of the market correction in the condominium sector is difficult to quantify but, of course, any downward correction will make the cost of living more affordable and will help facilitate an increase in demand from the domestic market for condominiums, which is needed for the long term sustainability of the sector.”

Wheble says that condominiums are still a viable investment, “but our view is that the next hot spot in Cambodia is going to be Sihanoukville, and we have already seen a significant increase in investor activity during the past six months.”

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Cumulative Supply of Condos in Phnom Penh (2009-2018) Source: Knight Frank Research

In the office sector, Knight Frank says completion of a few large projects from 2017 onwards is likely to result in “downward pressure on rental prices for Grade A and Grade B offices.” It goes on to say that a steady supply of completions is keeping the office sector free from the threat of oversupply and a fall in rents in the short term.

Demand for Grade A office space has not seen a significant increase within the past six months, with Grades B and C still the most in demand.

There is, though, better news in other areas of the property sector. The Knight Frank report says the consultancy is seeing increasing investment in the industrial sector, as multinational companies assess the benefits of setting up operations in Cambodia, particularly along the border with Thailand.

The company says there is growing demand for agricultural land as foreign companies seek to take advantage of more mechanisation, providing higher crop yields and healthier returns.

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