Cambodia Investment Review
In the global real estate context, the Cambodian market has been capturing attention for its rapidly upward trajectory over the last 10 years. However, in 2023 it has been grappling with the repercussions of global macro-economic changes, weakened Chinese demand as well as an oversupply of projects. Considering these challenges, CBRE Cambodia presented its comprehensive Mid-Year Review 2023: Phnom Penh Real Estate Market Insights report on July 12th. This report takes an in-depth look at Phnom Penh’s commercial and residential real estate sectors in the first half of 2023.
Read more: CBRE Cambodia’s Q1 2023 Market Insights Report
Lawrence Lennon, Managing Director of CBRE Cambodia, opened the 2023 mid-year report openly-discussing the complex challenges currently faced by the sector, which have been magnified by the global slowdown. The upsurge in inflation-induced capital costs coupled with diminished western consumption had a direct impact on Cambodia’s exports, causing a 30% decline in textile exports in Q1 2023, a segment making up 40% of total annual exports and employing 750,000 individuals.
Moreover, a noticeable reduction in Foreign Direct Investment (FDI) has occurred due to issues within China’s export and real estate sectors. However, amidst these challenges, Lawrence highlighted the silver lining — the slow but steady global recovery from the COVID-19 pandemic. He noted the resumption of business and tourism activities, which is expected to spur economic growth.
Office: Expanding Supply Amid Economic Headwinds
One of the key areas evaluated in the review is Phnom Penh’s office sector. This sector is poised to see considerable expansion in 2023, with an estimated 215,000 square meters of office space expected to be added. This addition will push the total supply by 24% to over one million square meters, a significant increase that underscores the sector’s growth potential.
With this growing supply, the sector has experienced a slump in occupancy rates. The average occupancy rate decreased from 60% in the previous quarter to 58% in the first half of 2023. While office rents in both central and non-central business districts increased between 2% to 4% from 2nd half of 2022, meaning rents remained stagnant. This plateau follows a considerable decline of up to 20% in office asking rents since the peak in 2019.
Daluch Chin, Senior Manager, Valuation & Advisory of CBRE Cambodia, voiced his concerns about the foreseeable pressure on office rents and occupancy levels due to the significant upcoming supply and the subdued demand for office spaces throughout the remainder of 2023. She noted that instead of reducing quoting rents, landlords are now resorting to other incentives such as free parking space, longer rent-free periods, or tenant improvements, leading to an overall compression of effective rents.
Retail: Slowdown and Transformation
The retail sector has been another area of focus in CBRE’s review. Following a flurry of new project launches and completions in 2022, the sector saw a slowdown in H1 2023. Despite this slowdown, new retail spaces increased the total supply by 6%, adding over 39,000 sqm to the mix.
Daluch, while discussing the shift in the retail sector, pointed out that even amidst the slowdown, rents at prime high streets are showing signs of recovery. The rents at these prime locations are now approaching their 2019 levels, demonstrating the sector’s resilience.
Daluch attributed this contrast to the strategic shift of retailers towards high street locations for better footfall, prominence, and ease of Business-2-Consumer delivery access. Furthermore, she noted a trend in retail real estate where new projects are increasingly focusing on integrating entertainment-oriented and activity-focused tenant mixes to attract and retain footfalls.
Residential: Competition and Market Adjustment
The residential real estate market, following years of aggressive expansion, faced a tough H1 2023, with intensified competition and weakened demand. While a few condominium and landed property projects in prime locations managed to maintain or slightly grow their asking prices, the majority of developers are now offering discounts and flexible payment terms to attract buyers.
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The first half of 2023 also witnessed three new condominium completions, introducing over 1,600 units to the pipeline, and ten project completions adding over 4,600 units to the total supply. By the end of this year, the condominium supply is expected to accumulate to nearly 55,000 units, a 16% increase year-over-year.
Kinkesa Kim, Deputy Managing Director of CBRE Cambodia, acknowledged the challenges but underscored that sales were still being made for projects that were correctly positioned in terms of price, location, project quality, developer track records, and project size.
For landed properties, H1 2023 marked the slowest quarter in terms of project launches in the past five years. Kinkesa noted that compared to the peak of 88 projects in 2020, only eight projects were launched during the period.
Future Prospects and Predictions
As the CBRE Cambodia’s mid-year review unveiled, the rest of 2023 is set to be a period of both challenges by sellers and opportunities for buyers. While economic headwinds continue to exert pressure, the resilience of the market is expected to manifest in the gradual recovery of rents and a strategic shift in retail real estate.
For those interested in a more detailed understanding of the current trends and challenges, the ‘Phnom Penh Figures: Mid-Year Review 2023′ presentation is available on the CBRE Cambodia’s website. The presentation elaborates further on the complex dynamics of Cambodia’s real estate market and offers valuable insights for investors and stakeholders alike.
