Cambodia Investment Review
Phnom Penh’s real estate market is beginning to demonstrate resilience and cautious optimism according to the Q1 2024 report from CBRE Cambodia. Various sectors, including office, retail, residential, and hospitality, are navigating through different challenges and trends, suggesting a nuanced approach to growth and development.
The update was delivered after Phnom Penh’s property market went through what many experts have told Cambodia Investment Review was its worst year on record following the COVID 19 pandemic economic slowdown, rising interest rates, large over-supply and an absence of foreign buyers in the market.
Office Real Estate: A Balance Between Supply and Stagnant Demand
The office real estate market in Phnom Penh has witnessed a notable evolution, marked by a cautious increase in supply and changes in occupancy rates. According to CBRE Cambodia’s Q1 2024 report, there have been no new project launches, suggesting a pause in market expansion. However, ongoing projects have continued to completion, enhancing the total supply. The current occupancy rate is moderate at 62.2%, across various grades of office spaces, indicating that demand has not kept pace with the increased supply, possibly due to economic uncertainties or changes in business models.
Projections for 2024 and 2025 show an expected addition of over 171,000 square meters and 268,000 square meters of office space, respectively. This anticipated growth reflects developer confidence in the market’s potential despite the lukewarm current demand. Such expansion is seen as being driven by potential economic growth, foreign investments, and local business expansions post-pandemic.
Regarding rental prices, the rates for centrally owned office spaces have been relatively stable from Q1 2020 to Q1 2024, with only minor fluctuations observed across different grades and regions. For instance, Grade A spaces in the CBD have seen a slight decrease of 2.8%, indicating a market that may be becoming more tenant-favorable. Conversely, Grade B spaces in non-CBD areas have witnessed slight increases, suggesting a shift in tenant preference toward more affordable options.
The business landscape in Phnom Penh is diverse, with a significant portion of establishments, particularly SMEs, operating in spaces smaller than 200 square meters. A notable 54% of these businesses rent their spaces, reflecting a flexible commercial property market. This current market stability offers businesses predictability in operational costs, crucial for strategic planning and fostering competitiveness and resilience as workplace dynamics continue to evolve.
Retail Sector: Expanding in Face of Lower Occupancy
Phnom Penh’s retail sector is experiencing a period of contrast and transition, as highlighted in CBRE Cambodia’s Q1 2024 report. Despite a decline in retail occupancy rates, which have fallen to 63.4%, there is a robust plan for expansion. Over the next two years, the city anticipates adding significant retail spaces, with more than 101,000 square meters in 2024 and an additional 116,000 square meters in 2025. This expansion, encompassing shopping malls, community malls, and retail podiums, suggests an optimistic outlook for a revitalized retail environment, potentially fueled by increased consumer spending and economic recovery.
Comparatively, Phnom Penh’s retail space per capita remains low against more developed ASEAN counterparts such as Bangkok and Ho Chi Minh City. This disparity underscores Phnom Penh’s potential for growth and the underdeveloped nature of its retail market. Additionally, Phnom Penh’s retail rents are competitively priced, lower than both central and non-central districts of Ho Chi Minh City, making it an appealing market for new retailers and international brands considering expansion into Cambodia.
However, a detailed analysis of retail rent trends from Q1 2020 to Q1 2024 indicates that the sector is in a state of recovery. Although recent figures show a slight quarter-on-quarter decrease in rents across various retail formats, there has been a more substantial year-on-year drop. Interestingly, prime high street locations have seen an 8% increase in rents, bucking the overall downward trend, possibly reflecting a consumer shift towards premium shopping experiences and the strategic positioning of retailers in high-traffic areas.
The dynamics of Phnom Penh’s retail market, characterized by declining occupancy rates juxtaposed with increasing supply, present a complex narrative of challenges and opportunities. As the market prepares for a potential upswing, retailers and developers need to engage in strategic planning and develop a deep understanding of evolving consumer behaviors. This strategic approach will be crucial in capitalizing on the latent potential of Phnom Penh’s retail environment and navigating its transitional phase effectively.
Hospitality Sector: Signs of Recovery Amidst A Slow Increase in Tourist Arrivals
Phnom Penh is witnessing a gradual resurgence in its hospitality sector, as indicated by the recent uptick in international tourist arrivals and a renewed commitment from global airlines. The CBRE Research data for Q1 2024 illustrates this revival, showcasing the city’s bounce back from the travel downturn experienced over the past years. International tourist arrivals at both Phnom Penh and Siem Reap international airports have increased, and major airlines like AirAsia and Emirates are reinstating services, signaling confidence in the region’s tourism potential. This boost is further reinforced by an encouraging rebound in Angkor Wat ticket sales, presenting a positive outlook for Cambodia’s iconic cultural heritage sector.
However, this recovery is juxtaposed with a slowdown in the growth of the city’s hospitality offerings. The supply of 3 to 5-star hotel accommodations has seen a modest annual increase, indicating a cautious approach amidst a slow occupancy recovery. The market seems to be correcting itself after the initial rush to accommodate a previously booming tourist sector. The expected addition of 600+ keys in 2024, alongside the debut of notable brands like Novotel, points to a strategic and measured growth aligned with the incremental return of tourists.
The steadiness in the hotel daily rates across all categories, with the most rapid recovery seen in the 3-star segment, suggests a market striving for balance. While the high-end segment maintains its premium pricing, the more competitive pricing of 3-star accommodations may be capturing the growing demand of cost-conscious travelers. The diverse range of daily rates indicates a strategic segmentation in Phnom Penh’s hospitality market, catering to different traveler budgets and preferences.
Together, these indicators paint a picture of a hospitality industry that is navigating through a period of recalibration. The cautious expansion of hotel supply, coupled with steady daily rates and a revitalized tourist influx, suggests a sector on the mend and poised for sustainable growth. This careful balance between supply and demand is critical as Phnom Penh positions itself as a resilient and attractive destination for international and domestic travelers alike.
Residential Property Market: Steady Growth with Diverse Offerings
The residential property market in Phnom Penh is progressing steadily, reflecting a careful balance of continuity and cautious innovation. CBRE Research’s data for Q1 2024 shows that in the condominium sector, existing projects are being completed at a consistent pace, while new launches are more measured. The diverse range of projects, from affordable to high-end units, indicates a noticeable increase in supply, with projections for continued growth into 2025. This trend suggests that developers are diligently managing their development pipelines in response to market demand and absorption rates.
Simultaneously, the supply of landed properties, which includes single-family homes and townhouses, is experiencing a significant uptick. This sector shows a more robust growth trajectory, with a substantial increase in the number of units entering the market. The growing preference for more spacious and private living accommodations reflects shifts in consumer behavior, likely influenced by lifestyle changes following the pandemic.
The pricing landscape within the condominium market exhibits overall stability, with only minor adjustments upward. The high-end segment has seen slight year-over-year price increases, while the mid-range and affordable segments remain relatively stable with marginal fluctuations. This steadiness, even as the supply increases, suggests a market aiming for equilibrium, with developers adjusting prices to meet consumer purchasing power and investment levels.
Overall, Phnom Penh’s residential real estate market is displaying signs of maturity, characterized by a cautious yet forward-moving approach. Developers are completing existing projects and carefully planning new launches, while pricing adjustments are made with a keen eye on maintaining market balance. This alignment of supply with genuine demand underscores a broader economic stability in the region, offering potential buyers a variety of housing options and price points, fostering a healthy market poised for sustained growth.
