A looming oversupply in Cambodia’s real estate market means that developers should consider waiting to complete buildings or repurposing them into alternative markets such as student accommodation and backpacker accommodation, says CBRE’s Cambodia chair, Mr Marc Townsend.
Mr Townsend was speaking at the launch of CBRE’s 2023 Fearless Forecast report which analyses the state of the Cambodian real estate sector. The country chair said that Cambodia’s effective approach to managing Covid meant that while its economy was better placed than many countries globally the return of GDP growth would not eliminate the excess supply in the country’s real estate market.
“When you look at the GDP numbers, particularly relative to Europe, then it’s clear that the cork has jumped out of the bottle in Southeast Asia, and Cambodia is one of the best-performing markets in the region. It came off the Covid crisis quicker, reopened earlier, and got its population vaccinated,” Townsend said.
“Having a property oversupply in Cambodia is probably better than having the highest inflation in Turkey in a generation, or the biggest increase in energy costs in two generations in Europe, but that’s the reality,” he added.
There was just too much supply too soon
According to CBRE’s research, at the Cambodian real estate market’s 2019 peak over 1,400 construction projects were approved, whereas the figures for 2022 are below 600 – a difference that Mr Townsend said was explained by excess supply in the market, particularly among higher-end properties.
“There was just too much supply too soon, and there just aren’t enough occupiers for the space. This overhang in many sectors needs to be chewed through and this can be done because people decide to drop their prices, they’re going to get better terms and conditions or they’re going to convert that space into something else,” he said.
Mr Townsend was most bullish over the final option, saying that the number of colleges and universities in Phnom Penh meant there is potentially a largely untapped market for student accommodation.
He said that there were over 35 colleges and universities in Phnom Penh and that the Cambodian capital was home to an ambient student population of over 200,000, all of whom typically live at home, rather in purpose-built accommodation as is the norm in many countries.
“I’ve never met a student that wants to live with their parents when they have the choice of living in purpose-built student accommodation with other students. So you’ve got all these empty, one-star and two-star hotels, in some crazy areas that just happen to be near a university. They can be repurposed and reused.”
Focus on lower-end market options
Another area Mr Townsend pointed to was hostels. A combination of pent-up demand among backpackers and the closure of many low-cost facilities during Covid has seen demand for hostels soar in 2023, with travelers in Australia paying up to $180 a night for a room in a 100-person dorm.
The cost of a dorm bed in Cambodia will obviously be cheaper than one on Australia’s Gold Coast, but the CBRE chair said hostels in Cambodia will experience much higher occupancy rates in the near future than four- or five-star hotels.
Mr Townsend said that backpacker hostels were one of his favorite asset classes and that he would invest in them because he expected the post-Covid recovery in business and luxury travel would be gradual as professionals and entrepreneurs focus on their work in the current uncertain economic environment.
“But the kids that have just graduated don’t have that concern, and they want to spend a few months backing in places like Boracay, Luang Prabang and Siem Reap. The occupancy rate in those places is 80-90%, with food and beverage margins of 50%. Anyone thinking about building a Five Star hotel might want to think about those numbers,” he said.
While there may be a number of opportunities in Cambodia’s real estate market, Mr Townsend said international investors still favored Vietnam in the near term for two main reasons.
“Private equity investors prefer Vietnam for this moment because they see the Cambodian market as illiquid and bringing money out of the country is still very challenging. I don’t want anyone to think that suddenly you’re going to get plane loads of private equity firms to take away all your unsold stock, because it isn’t going to happen,” Mr Townsend added.