In a coffee shop near the Russian Market, Ly Kheng could make a list of the souvenir, clothing and jewelry shops on the block that have closed down recently, an effect of the rising rent prices in the area. Although the area, also known as Phsar Toul Tom Poung, is known as a place where foreigners and locals bargain with shop owners on products, business owners struggle to settle on a fair price with landowners.

As rents increase by 25 per cent for businesses near the Russian Market, owners find themselves at the losing end when negotiating a price with landlords. Because the area is still seen by many eager, aspiring shop owners as a main draw for foreigners, the increased rents have caused a high turnover for businesses as many shops close down and a steady stream of newcomers quickly snatch up the vacancies.

Nevertheless, Kheng, the general manager of Yeji Café—an establishment that has been operating for 10 years on the outskirts of the market —has noticed business slowing down in the last few months.

“Compared to the previous years, the number of tourists [coming to this café] has decreased by about 20 per cent to 30 per cent,” he said. 

However, with the noisy renovation of a new clothing shop nearby that is replacing a silk shop that closed down merely a month ago, the café is far from quiet.

“Most landlords would raise the shop rent once the lease is over; those whose income cannot support them have to close their shops,” said Kheng, adding there were a number of shops closing down due to rising cost of commercial rental property, including a clothing store, a souvenir shop and a painting shop down the block. 

According to Khmer Real Estate, for a 64-square-metre shop house with 2.5 floors near the market, the rent for this year is about $1,500 to $ 2,000, up 25 per cent from last year, which was about $1,200 to $1,700. 

“There is a big demand in some areas, and the mentality of the landlords is changing with this accordingly,” said Alexander Evengroen, the general manager of Khmer Real Estate.

The rising cost of rent is steeper than that of the past three years, which averaged 10 per cent to 15 per cent annually. Compared with the same premier shopping hub, like the Central Market, the rent rise near the Russian Market is five per cent higher this year. 

“There are more people wanting to stay in the Russian Market area because the products they offer are more in the range of that location,” said Evengroen. 

Landlords may not realise the business environment is getting more competitive, but Evengroen has noticed stiffer competition in Russian Market as similar businesses offering the same products negatively affect each others’ income.

According to the law of survival to the fittest, those who cannot make enough profit have to be squeezed out, leaving the shops vacant. Still, Evengroen said shops only take one to three months to find new tenants. He has noticed a rise in fashion shops, restaurants, gold and jewellery stores— leading to a trend to more diversified, higher-end goods.   

Before, Yi Nary, who owns a 12-square-metre shop just outside Russian Market, even had the chance to put up a ‘for rent’ sign, she already had potential renters knocking on her door. Seeing the increasing demand, she planned on boosting the rent from $1,200 to $1,500. 

However, while the previous tenant sold garment factory clothes, she saw an opportunity to sell customized clothes—moving away from the standard goods that flood the market. With her daughter as the fashion designer, Nary opened MRD clothing store last February.

“Russian Market is well known for its clothing selections from garment factories. That’s why most of clothing stores are still up and running,” said Nary. But with her new store, primarily targeting teenagers, she nets at least $2,000 to $3,000 a month.

In general, she said the clothing fares better than selling souvenirs, especially in an oversaturated market where vendors compete with the same goods. She closed her own souvenir shop because at times, there were no customers for three to four days.  

While she noted that the local perception is that low-priced souvenirs are still profitable, they have been the bulk of the turnover as rental prices have increased. 

From her last business experience, Nary found that bargain-seeking foreigners would only offer $1 for everything regardless of the cost of items, greatly affecting the business. 

“If the business fares well, tenants will stay; if not, they will leave and another will move in,” she said.

However, Daniel Li, an entrepreneur in retail, F&B and education, as well as Group CEO of Cambo-Sia International, believes the Russian Market is going through unprecedented growth and that retailers will have to adapt.

“I believe the Russian Market will continue to draw tourists as it is a different shopping experience compared to Central Market,” he said, noting that the narrow lanes, zinc roofs and the rustic look of the market is an appealing factor.

In addition, the Russian Market is at the heart of a new boom with the expat community. As apartments in the area provide accommodation for half the price of BKK1, five kilometers away, expat traffic has increased.

“With the growth in the residential rental market, modern apartment units are mushrooming up in the area, and changing the skyline of once shop houses to chic apartment blocks,” Li said.

While competition for rental spaces outside the markets and on the main roads will continue to rise, he said, “small retailers will probably have to give way to mid-end products and services.”

“Smaller souvenir stalls will probably be affected by the squeeze, prime locations outside the market will command higher rentals, and if the souvenir stall cannot maintain volume sales, then they will not be able to run independently,” he said.