spot_img

What are the ‘silver linings’ of COVID in Cambodia’s real-estate sector?

Brian Badzmierowski

CBRE Cambodia Managing Director Lawrence Lennon would shake his head whenever he heard someone grumble about the somewhat apocalyptic look Siem Reap had assumed amid its 38-road reconstruction project that started last November.

Lennon knew the short-term pain would give way to long-term gains, and now that the new roads are almost complete, Siem Reap has already taken on a different, fresher feel.

This revamping during Covid has occurred elsewhere in Cambodia as well, Lennon said.

“What we’re seeing in Siem Reap is symbolic of the changes taking place throughout the country. We’re seeing Cambodia using the impact of Covid as an opportunity to step back, take a breather, assess the trajectory of the past few years, and develop a strategy to move forward.”

He told Cambodia Investment Review that the Kingdom has diversified its industries as a result of COVID-19, and there is growing momentum behind the manufacturing, agricultural, and logistics sectors.

As Cambodia progresses towards becoming an upper-middle-class country by 2030, Lennon sees the country following in the footsteps of other more industrialized nations.

“If you look at the development process that all countries have gone through — be it the UK, Japan, Korea, or China — that path has included empowering small-scale farmers and using the proceeds from agricultural surplus to develop a manufacturing and industrial base.”

“With the support of financial institutions, these sectors can have a transformational impact, creating an environment that drives job creation, providing a stable paycheck for thousands of people. These people can then leave subsistence farming, send their children to school, and eventually buy property.”

Manufacturing and exports have started to rebound lately. Garment and manufacturing exports have jumped 13.5 percent in 2021, and some of that uptick can be attributed to buyers shifting their focus from regional competitors to Cambodia.

Domestic production is diversifying as well, and RMA will open a $21 million Ford vehicle plant in 2022 in Pursat, an enterprise that is expected to create around 500 jobs.

CBRE Managing Director Lawrence Lennon (r) shaking hands with Morgan Group Vice President Zhu Zhongwen at a signing ceremony for the 46-story Morgan Tower.

Phnom Penh industry sprawling south

Much of the industrial and manufacturing activity is happening just south of Phnom Penh, a region that CBRE expects to continue to draw investors as prices in the heart of the capital continue to rise.

“Industrial and logistics activity in the southern region of Phnom Penh is still at a nascent stage,” CBRE reported in its Phnom Penh: Southern Districts and Beyond report.

“However, the expanding infrastructure development witnessed is the bedrock of good industrial policy – allowing all other components of a manufacturing base to operate smoothly and, vitally, in a cost-effective manner. From the perspective of Phnom Penh, that means ever-greater access to land borders, seaports, river routes, and airports.”

CBRE noted in the report that zoning regulations should be implemented to inhibit competitors from building similar projects too close to each other.

Lennon also sees opportunity in the logistics sector developing in tandem with the agriculture and industry.

Sihanoukville’s deep sea port – expected to be completed in 2022 — the Phnom Penh-Sihanoukville expressway, new airports, and the construction of an extensive network of roads throughout the country will greatly reduce travel time and cost. This will ease trade facilitation, especially with neighboring Vietnam and Thailand, Lennon said.

Key districts in southern Phnom Penh have experienced consistent population growth, fast development, and increased investment in infrastructure during recent years.

Cambodia’s tourism sector due for bounce-back

On the tourism front, Lennon said he expects Siem Reap to transform into a multi-visit destination thanks to the city’s new master plan, updated infrastructure and new attractions.

“Marathons, cycling races, water skiing, quad biking, and cycle tours through the temples and to the countryside – combined with improved hospitality and food and beverage offerings – will likely help to keep people coming back,” he said.

In Mondulkiri, Lennon expects a rise in domestic tourism and the potential for an agricultural sector boom to benefit the local economy while creating a new sustainable form of revenue for the Kingdom.

“The climate seems to be suitable for both agricultural activity and a unique tourism experience. One must hope adequate oversight is put in place to minimize over development and improve land management,” he said.

The South Korean government recently provided a $3.3 million grant to the Ministry of Agriculture, Forestry, and Fisheries to support value-added agriculture in the province. Some targeted crops include Napa cabbage, broccoli, and white cabbage.

The Cambodia Trade Integration Strategy 2019-2023 identifies milled rice, cassava, rubber, and fruits and vegetables such as bananas, mangoes, and oranges as priority sectors to increase value-added products.

With renewed interest in solar panels, cold storage facilities, and improved processing, Lennon sees a bright future for the sector throughout the entire country with new technology, infrastructure, and capacity-building programs playing a large role.

The end goal, he added, is to export more value-added products. “We should be selling orange juice to Japan, not oranges to the local market.”

Repurposing Cambodian real estate

In the real estate sector, Covid has caused a slowdown. Investment in new construction dropped 21 percent during the first nine months of 2021.

However, Lennon said this can create opportunities for international businesses to enter the capital at more affordable rental rates.

“Occupiers are likely to benefit from the supply dynamics unfolding, whereby increased supply of good stock makes Phnom Penh an attractive base of operations. The value proposition of quality office space and a reasonable rental rate will soon be hard to ignore for large regional occupiers.”

As the market becomes increasingly competitive or the impact of COVID-19 too great, certain developments have either stood still or underperformed – in Q1 ’21 average occupancy was around 75%, by Q3 this dropped to 68% for centrally owned buildings.

Nonetheless, with the right strategy, unfinished buildings and part occupied property can also be repositioned to serve new purposes such as storage for e-commerce companies, schools, healthcare clinics, or even more unusual uses like vertical farms. The key is starting to consider alternative uses for space that may otherwise be underutilized.”

The construction sector did record a slight increase in investment in July and August over the second quarter of 2021, perhaps a sign that a recovery is on the rise.

Last week, CBRE also signed a deal with Morgan Group to manage what will become the tallest office tower in Phnom Penh, the 46-floor Morgan Tower located on Koh Pich.

Telegram Channel

Cambodia's best investment news & views direct into your Telegram account.

spot_img

Related Posts