Cambodia Investment Review

Phnom Penh’s real estate market records further growth while navigating ongoing challenges in Q3’22

Phnom Penh’s real estate market records further growth while navigating ongoing challenges in Q3’22

Gareth Johnson

Still far from pre-pandemic levels Phnom Penh’s real-estate sector has continued to grow in the third quarter of 2022 as well as offering scope for continued optimism for investors according to the latest market report presented by CBRE Cambodia.

CBRE is one of the world’s largest commercial real estate services and investment firms based on revenues from 2021.

The presentation titled “Q3 2022 Market Insights – Navigating Uncertainty” was hosted on the 19th floor of the Sathapana Building and focused on six main sectors: hotel, office, retail, condominiums and landed property.

To read more about CBRE Cambodia’s Q2’2022 real estate outlook click here.

The hotel sector is reopening in Cambodia

With the country now being fully reopened to tourism, the report focused on the overall progress of the hotel, tourism and hospitality sectors, as well as potential areas for growth within the sector.

The quarter has seen the opening of several new hotels, mainly focused around the Daun Penh area of the capital, such as the recently opened Tribe Hotel, their second entry into the Asian market from the brand. 

To read about Tribe Phnom Penh click here.

Despite these openings, CBRE Cambodia Managing Director Lawrence Lennon acknowledged the “elephant in the room” that is the lack of tourists, with there being just over 1 million visitors so far this year compared to 6.5 million in 2019. 

Cambodia’s Q3 2022 Hotel Sector.

This had led to 4 and 5 star hotels only reaching around 25 percent occupancy, although many hotels were now diversifying revenue streams towards local markets. This has included things such as co-working spaces and a pivot towards the promotion of food and beverages, as well as event hosting and management.

Growth most interestingly was to be found at the lower end of the tourist market, with Lennon adding that 50 percent of all arrivals to Cambodia had come from either Thailand or Vietnam. These visitors predominantly came from the so-called backpacker demographic, which has led to growth in the lower end hotel and hostel markets, with some venues reporting up to 100 percent occupancy. 

This according to Lennon should lead to investors seeking to exploit key “gaps in the market”, with Siem Reap in particular being slated alone as the safer bet for tourist investment.

Changes in the Phnom Penh office market

With the nation now back to normal working conditions following the lockdowns of the pandemic, the office market was another area that has continued to see a steady if not a strong rebound.

According to the report, centrally owned occupancy was around 69.4 percent, with 35,000+ sqm of new supply expected by the end of 2022. New developments have included the CG Fortune Centre, as well as Calla Office, with the main change with regards to new developments being a shift towards mixed-use developments.

Cambodia’s Q3 2022 Office Sector.

One example of this was with the Sathapana Building where the event was hosted with plans for retail and F&B being touted for the building, which is being managed by CBRE. 

The Phnom Penh retail sector

Cambodia’s retail sector has largely grown as per the predictions of the 2022 Q1 and Q2 reports, seeing modest growth and the entry into the market of small number of new brands. 

Q3 saw one new completion and two new mall launches, with malls making up around 70 percent of all new retail builds within the period and representing 200,000 sqm of new supply expected in 2022. 

Cambodia’s Q3 2022 Retail Sector.

Overall occupancy rates within the retail sector were an impressive 70.7 percent, up from 66.6 percent in Q1, which while modest still represented growth within the sector. 

Overall there were also 10 new local and international brands that had entered the market, as well as 62 brands that expanded during the same period, including major players such as Starbucks, Krispy Kreme and Adidas, with new entrants and expansions predominantly coming from the F&B sector.

Phnom Penh condominium market sees further stagnation

The local condominium market was the area that performed most poorly during the period with their being zero new projects launched during the quarter and roughly 900 deferred units resumed.

This according to Lennon was at least in part related to the current property crisis within the People’s Republic of China, as well as the country for all intents being closed to both inbound and outbound travelers. This he added had directly affected both direct foreign investment from China, as well as the condominium market. 

Cambodia’s Q3 2022 Condominium Sector.

In 2019 FDI from China amounted to almost 70 percent of all investments within the Kingdom. The official amount of Foreign Direct Investment (FDI) inflow to Cambodia last year remained steady at $3.5 billion down -1% compared to 2019, according to the National Bank of Cambodia Financial Review 2020 report.

To read more about Cambodia’s recent FDI flows click here.

Negating uncertainty in Cambodia

Following on from the Q2 report titled “Eye of the Storm”, the theme of navigating uncertainty was again heavily influenced by global events, specifically the current war in Ukraine and the impact it is having on the global economy.

The panel spoke about the high levels of inflation currently affecting many western countries and the challenges this would create for the real estate sector in Phnom Penh and beyond. This included an impact on construction supply lines, higher costs, as well as people being more conservative with investments.

To read more about Cambodia’s inflation outlook click here.

It would also they added affect inflation within the Kingdom, with transport costs having risen around 20 percent this year according to the panel. 

Another key area of concern was with regards to China and its zero Covid policy affecting the completion of local projects, as well as overall investment. This was though an area where Lennon potentially saw light at the end of the tunnel stating: “We are hopeful that after the party congress has finished in China we will gain see not only Chinese visitors but also investors.”

CBRE Cambodia’s Q3 2022 Real Estate report was hosted at the Sathapana Building in Phnom Penh.

Most analysts are hopeful that will at least partially reopen by the end of Q4. It was though also a potential area for opportunity, a fact that has already been mentioned and indeed utilized in other sectors, such as the textile industry. 

Answering a question directly from Cambodia Investment Review about the importance of diversifying from China and how to achieve this Lennon stated: “I strongly believe that we do need to focus more on diversification. I believe this will come from further integration within the markets of ASEAN to not be over-reliant on China.”

The overall message though was positive, if Cambodia can maintain growth within the real-estate sector while the world is in turmoil and it does not have access to one of its biggest markets, then things can only get better. 

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