Harrison White
Cambodia’s real estate market has long been a focus of interest for local and international investors. Known for its dynamic growth and emerging opportunities, this market, however, hasn’t been immune to global economic challenges. In 2023, it faced a period of turbulence and uncertainty that tested its resilience.
This year, as the country grapples with geopolitical tensions, rising interest rates, tightening liquidity, and an oversupply issue, the industry has taken a cautious approach, with various stakeholders keenly observing the market trends. At the EuroCham Cambodia Real Estate & Construction 2023 Forum, industry experts shared their views on the challenges and opportunities faced by Cambodia’s real estate sector in 2023.
- Ross Wheble, EuroCham Vice- Chairman of the Real Estate Pillar & Country Head of Knight Frank Cambodia
- Vong Chhay Te, Managing Director of Parbury Investments
- Martin Darby, Managing Director Express and Food Group (EFG)
- Daniel Simon, Managing Director of Rosewood Phnom Penh
- Sorn Seap, President of Cambodian Valuers and Estate Agents Association
Their perspectives provide a comprehensive picture of the current market scenario, offering valuable foresight into the future of the Cambodian real estate market.
General Market Overview
Amidst a year that kicked off on a sluggish note for many in the real estate sector, Ross Wheble, a long-time observer of the Cambodian property market, offered his perspective. Wheble cites the geopolitical climate, global economic hurdles including rising interest rates and tighter liquidity, and Cambodia’s distinctive oversupply issue as contributing to the slow start.
“Undoubtedly, it has been a soft beginning to the year for many in the sector,” Mr. Wheble stated. He also pointed out that the impending general election in Cambodia, set for July, traditionally sees the market adopt a ‘wait and see’ approach. This sentiment is born out of his experience from living in Cambodia since 2013 and witnessing the pattern across three election cycles.
“This is my third election since moving to Cambodia,” he said, “and it’s been common for the markets to slow up until the election. We expect the real estate sector to pick up in the second half of the year and improve in 2024.”
However, Wheble’s outlook is not entirely gloomy saying, “The World Bank is still forecasting a 5.5% economic rise, which is the third best in the region and there is a lot to be positive about in Cambodia for the medium and long term.” Mr. Wheble praised the Cambodian government’s strong policies designed to attract more high-value manufacturing, supported by a robust push towards inter-modal transport plans.
He also highlighted the recent launch of the Phnom Penh to Sihanoukville expressway and the anticipated Phnom Penh to Bavet expressway as developments expected to bolster the sector in the coming years.
His perspective offers a balanced look at a market grappling with challenges and yet holding strong potential, underpinning the possibility of resurgence in the Cambodian real estate sector in the not-so-distant future.
Phnom Penh’s Office Sector
As Cambodia grapples with an oversupply issue in the real estate sector, TE Vong Chhay, a prominent figure in the market, provided his views on the situation, particularly focusing on the office sector. Mr. Chhay describes the problem as twofold, involving increased competition driving rent prices down and a rise in vacancy rates, thus creating a renters’ market.
Chhay further notes the adverse effects of inflation on the office sector, where economic headwinds and costlier fit-outs have weakened the market for new leases. He also highlighted the shift in workplace culture post-COVID pandemic, which has seen a move towards a hybrid work model over remote work, reducing the need for larger office spaces.
“Inflation has negatively impacted the office sector,” Chhay stated. “Also, post-COVID pandemic, there’s been a change in workplace culture with more employers moving towards hybrid work, hence reducing the need for larger office spaces.”
Despite these challenges, Mr. Chhay points out potential opportunities for the office sector, especially given the Cambodian government’s initiatives to attract Foreign Direct Investment (FDI) through incentives for new entrants or expanding businesses. He emphasizes the importance of listening to clients when it comes to market demands.
“There are three main considerations that we are hearing,” Chhay said. “Handover conditions – whether clients are looking for a full fit-out to be done for them or rent holidays while they complete the fit-out; fire safety, which has become much more significant after some global incidents; and parking – an increasingly hot issue for tenants.”
Mr. Chhay also reflected on the increased certification and regulation of construction codes to improve confidence in construction quality and to encourage developers towards standardized certification. He stressed the importance of occupancy permits for better maintenance, vital for considering the long-term lifecycle of a building of 20+ years.
Cambodian Retail Market
Martin Darby, Managing Director of Express Food Group (EFG), known for its diverse brand portfolio that includes Starbucks Coffee, Marks & Spencer, Vodafone Telecom, The Pizza Company, DQ, Krispy Kreme, Boost, Runam Bistro, and Celebrity Fitness, provided an optimistic outlook on the Cambodian retail sector, despite the challenges posed by the COVID-19 pandemic.
“Three years into COVID, it might sound odd that we are still discussing challenges, but the retail sector in Cambodia is facing several,” Mr. Darby stated. He described the key issues as three-fold: an oversupply due to delayed mall developments, a surge of new brand entries, particularly in pizza and hot pot sectors, and financial challenges caused by the lifting of government policies that assisted retailers during the pandemic, coupled with landlords seeking to recuperate their losses.
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“Many mall developers were delayed during the COVID years, causing an oversupply in the short term,” Darby explained. “New brand entries were delayed during COVID, and now many have entered over the last 12 months, again causing an oversupply. Also, government policies that helped retailers during the COVID period are being lifted, and landlords are now looking to recoup their losses.”
Darby emphasizes the importance of collaboration between retailers and mall owners to devise long-term, mutually beneficial strategies. He envisions EFG taking larger retail spaces and dividing those leases among multiple brands to create retail hubs. This, he believes, will allow the company to adapt quickly to consumer needs and work closely with landlords.
He particularly highlighted the opportunity presented by the newly launched Phnom Penh to Sihanoukville expressway, where EFG is planning one of its most ambitious projects: bringing all its brands together under one location along the new highway.
“We are taking on arguably our most ambitious plans with the Phnom Penh to Sihanoukville expressway project,” Darby noted. “Our aim is to bring all our brands together under one location along the new highway.”
Despite the short-term challenges, Darby is confident about the long-term prospects of the retail sector in Cambodia. His optimism is reflected in EFG’s expansion plans, which include the launch of 15 new stores and 10 refurbishments. “EFG is optimistic about the long-term retail sector, and this is reflected in our plans to launch 15 new stores and conduct 10 refurbishments,” he concluded.
Luxury Hotels in Phnom Penh
The luxury hotel market in Phnom Penh, featuring prominent names such as Raffles, Sofitel, Rosewood, and Hyatt Regency, is set to welcome new entrants, including Shangri-La, Novotel, Hilton, and Pan Pacific, in the short to medium term. Daniel Simon, Managing Director at Rosewood Phnom Penh, provided insights into the current scenario and outlined his optimism for the future of this market segment.
Simon began by identifying one of the primary challenges faced by the luxury hotel sector in Phnom Penh: flight arrivals. He noted that arrival numbers were still below 2019 levels. The industry expected a return of Chinese tourists post-COVID, but Simon pointed out that this travel influx has predominantly been towards regional competitor, Thailand.
“Most of the industry was told that after COVID, Chinese tourists would return. However, they have come back, but not to Cambodia,” Simon stated. “Our sister hotel in Bangkok is experiencing 90% occupancy with a doubled average room rate.”
Despite this, Simon mentioned the recent SEA Games as a significant boost for arrivals, partially attributed to athletes’ accommodation needs due to an unfinished village. However, he noted that since the pandemic, the industry has mainly relied on the domestic market, many of whom have started traveling outside the country in 2022 and 2023.
“Since COVID, the industry has mainly been reliant on the domestic market. Fast forward to 2022 and 2023, many of those domestic spenders have been traveling outside the country,” he explained. He cited a study indicating that outbound flights from China are only operating at 33% compared to the 2019 benchmark figure, but it is expected to increase to around 70% by the end of the year.
Although Simon’s current sentiment might appear gloomy, he expressed optimism for the years 2024 and 2025, and beyond. He emphasized the need for the sector to ensure increased inbound flight capacity and better marketing for Cambodia as a high-end luxury destination for travelers and corporate meetings.
“So, while my current sentiment may be a bit gloomy, I am bullish for 2024 – 2025 and beyond,” Simon stated. “What we need to do as a sector is ensure inbound flight capacity and market Cambodia better as a high-end luxury destination for travelers and corporate meetings.”
His views underline the potential of the luxury hotel market in Phnom Penh despite the current challenges, highlighting the city’s appeal as a luxury destination that provides an advantageous price point for high-end consumers and professionals.
Cambodian Residential Property Market
The residential property market in Cambodia has witnessed steady growth over the last decade, primarily centered in Phnom Penh, Sihanoukville, and Siem Reap. Sorn Seap, President of the Cambodian Valuers and Estate Agents Association (CVEAA), shared his insights into this flourishing market and its associated challenges, while expressing optimism about its future prospects.
Seap began by reflecting on the challenges that the residential property market faces. Infrastructure, he pointed out, is lacking, which impedes developers from building more affordable housing for the local market. He also noted the need for improvement in Cambodia’s legal and regulatory framework.
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He also pointed out that previously only locals could own land, but recent allowances for the private sector and foreigners have led to an increase in land ownership, particularly following the new trust law. However, Seap mentioned that financial constraints persist, including tightening liquidity, rising interest rates, and at times, confusing processes.
“Previously only locals could own land,” he added. “However, the increasing allowances for the private sector and foreigners to own land, most recently through the new trust law, have been a positive development.”
Looking ahead, Seap identifies strong competition due to market oversaturation as a significant challenge, with some property owners deciding to build property to generate income from their land. Despite these challenges, he emphasized the opportunities presented by a growing middle class, increasing urbanization in major and secondary cities, and improving infrastructure, all of which drive demand for accommodation.
Pointing out the potential of Phnom Penh as a rising tourism hub, located between Thailand and Vietnam, Seap highlighted the opportunities for leisure resorts. He commended government initiatives for improving roads and airports to assist with tourist arrivals and offering tax benefits to promote growth.
“Phnom Penh is attracting more tourism as the country is in the middle between Thailand and Vietnam,” Seap concluded. “The government has also put a focus on roads and airports to help with these tourist arrivals. There is also an opportunity for more leisure resorts, coupled with government initiatives to provide tax benefits.”
Overall, the Cambodian real estate sector, while facing challenges, is poised for growth. The collective insight of industry observers and leaders points towards the inherent resilience of the market and its potential for recovery and growth. Thus, despite a slow start to 2023, the outlook remains promising, underpinned by careful strategizing, government initiatives, and a keen understanding of market demands and trends.
