Cambodia Investment Review

CBRE Phnom Penh’s Real Transitioning from Traditional Villas to Modern, Sustainable Office Spaces Amid Falling Rents

CBRE Phnom Penh’s Real Transitioning from Traditional Villas to Modern, Sustainable Office Spaces Amid Falling Rents

Vijian Paramasivam

The real estate landscape in Phnom Penh is undergoing a significant transformation. Once dominated by high-cost, premium office buildings, the market is now shifting towards more affordable and tenant-friendly options. This evolution is particularly notable in the city’s office space sector, where falling rents are opening up new opportunities for businesses. CBRE Cambodia, a leading real estate specialist, views this trend as an ideal moment for businesses to move into modern office towers, a significant upgrade from the traditional work space or residential option.

Lawrence Lennon, the managing director of CBRE Cambodia, has been closely monitoring these market dynamics. He points out that the sector is experiencing a considerable 20% drop in the asking rate for office space rentals since 2019. “It is an exciting time for occupiers to find rental space,” Lennon remarked. He emphasizes that, apart from the cost-saving aspect, modern offices offer significant benefits such as enhancing a business’s branding and attracting top-notch talent.

CBRE Cambodia.

Read more: Phnom Penh Q3 2023 Property Market Review: Adaptation and Trends Continue Amid Oversupply Pressures

The experience of Phnom Penh in this regard is not unique. Lennon draws a parallel to Yangon, noting that both capitals underwent similar developments. Initially, both cities faced a scarcity of office space, which eventually eased as more supply entered the market, leading to a substantial reduction in prices. He recalled that in 2016, Grade A office space in Yangon was leasing at up to $50 per square meter, but this figure dropped to $30 per sqm in just two years, reflecting a similar trend to what Phnom Penh is currently experiencing.

Result Of Several Converging Factors

The shift in the office space market in Phnom Penh is a result of several converging factors. Prior to the COVID-19 pandemic, there was a surge of optimism in the real estate sector, driven by strong demand and steady economic growth. However, since 2022, the sector has witnessed a change in direction. Factors such as reduced capital expenditure by companies, a more frugal lifestyle adopted by individuals, a softening economy, and a slowing inflow of foreign direct investment have dampened demand in all three key segments: commercial, retail, and residential.

CBRE Cambodia.

This change in market dynamics has been further exacerbated by the completion of several new projects, resulting in an oversupply of office space. Lennon highlights the significant increase in supply, with office space in Phnom Penh doubling from 500,000 square meters in 2019 to over a million square meters in 2023. “This is a huge opportunity as it is very much a tenant-friendly market,” he said. The peak occupancy rate, which was around 90% previously, has now decreased to approximately 64%. Additionally, asking rental rates have decreased by 20% since 2019, presenting challenges for landlords but offering great opportunities for occupiers.

Another aspect of this shift is the transition from traditional to professional landlords. Businesses renting modern office spaces benefit from dealing with professional property managers who provide reliable and high-quality services. These managers contrast starkly with the single owners of shop houses or villas, who are often less flexible and have limited resources. “There is much less workspace flexibility in older buildings, in a modern building users can design and arrange space around their needs. Much more conducive to modern working styles, encouraging collaboration and even acting as a tool for attracting talent,” Lennon added.

Focus On Environmental Sustainability Design

The choice of office location is increasingly important for businesses in Phnom Penh. Occupying an office in a reputable area not only enhances a company’s brand but also offers numerous benefits like flexibility in design and layout, visibility for branding, and the ability to attract and retain talented employees. Modern offices are particularly appealing to startups, millennials, and Generation Z, who prefer vibrant work environments equipped with amenities such as parking, gym facilities, WiFi, and cafes.

Read more: A New Era For Cambodian Workspaces: Sustainability, Lifestyle & Technology Take Priority

CBRE Cambodia.

Finally, Lennon addressed the growing focus on environmental sustainability in building design. With the global concern over the impact of high-rise buildings on urban environments and global warming, developers are turning to building automation systems. These systems, which are not typically found in older buildings, use sensors to control and monitor various aspects such as electricity, heating, air-conditioning, and water management. This shift towards energy-efficient, environmentally friendly buildings is another significant factor in the evolving real estate landscape of Phnom Penh.

The current trends in Phnom Penh’s office market reflect a broader pattern observed in evolving real estate markets. As the city adapts to these changes, opportunities are emerging for businesses to capitalize on more affordable, modern, and sustainable office spaces, heralding a new era in the capital’s commercial landscape.

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