Cambodia Investment Review
2019 to 2023 have witnessed dramatic changes in the Phnom Penh real estate market, necessitating a complete reevaluation of prevailing market strategies. A report by CBRE Cambodia, released on August 17, 2023, revealed that according to traditional property cycles the Phnom Penh market is currently in the recession phase across all major sectors, signaling an imperative need for investors to adopt new strategies.
With Cambodia’s GDP growth rate estimated at an optimistic 5% in 2023 and office occupancy at 58%, prices for high-end condos, retail spaces, and office rentals have dropped significantly from their peaks in 2019, with some experiencing declines as steep as 35%. Meanwhile, hotel rates for 5-star accommodations remain at $199 USD per room per night, and stalled construction projects continue to be a common sight across Phnom Penh.
This rapidly shifting market has led Daluch Chin, Senior Manager of Valuation & Advisory Services at CBRE Cambodia, to emphasize the importance of accurate and data-driven valuations. Chin stated that “amidst these changes, it is essential for investors and lenders to obtain up-to-date and data-driven valuations on their real estate investments and collaterals to manage their risks.”
Clear Indications of Entering a Recessionary Phase
The financial landscape in the real estate sector also shows signs of strain, with higher deposit rates of 6%+ and lending rates of around 9%+. The inflation rate has been fluctuating between 3-5%, and the growing risk of Non-Performing Loans (NPLs), now approaching 4%, has put significant pressure on financiers and developers. Mortgage and owner occupiers have decreased from 45% to 25% since 2019.
Read more: CBRE Cambodia Awarded License as Valuation Firm from Securities and Exchange Regulator
This increased financial pressure, combined with decreases in sales and rental prices, has resulted in a highly competitive environment for developers and landlords. Consumers, facing economic uncertainty, have adopted more conservative spending habits, while businesses focus on survival over expansion.
Mrs. Kinkesa Kim, Deputy Managing Director of CBRE Cambodia, reflected on the market’s current state, noting that “Phnom Penh real estate market is presenting clear indications of entering a recessionary phase, with high vacancy rates and slower demand.” She urged developers to innovate, adapt, and even repurpose existing inventory, such as converting underutilized commercial spaces into Business Process Outsourcing (BPO) centers.
Innovative Repurposing of Vacant Supplies to Alternative Uses
Despite the challenges, the Cambodian property sector’s commercial vacancy and reduced rents are also paving the way for new opportunities. The burgeoning BPO industry, affordable retirement homes, and innovative repurposing of vacant supplies to alternative uses are evidence of creativity in the market.
Mrs. Nita Pich, Associate Director of Capital Markets at CBRE Cambodia, emphasized the continuing interest in distressed landed properties, stating, “We still receive enquiries from buyers who are focused on distressed landed properties and assets on sales. However, only the right price and flexibility on terms and condition will help a lot to conclude and increase the transaction in the current market.”
The first half of 2023 has set the stage for an unprecedented era in the Phnom Penh real estate market. With the fewest new project launches in a decade and over 430 projects with unsold inventory, the playbook from 2019 is no longer applicable. By embracing data-driven valuations, innovative strategies, and fresh areas of growth, stakeholders can adapt to the changing landscape and guide Phnom Penh’s real estate market towards a new and promising future.
