Cambodia Investment Review
The Cambodia real estate market continues to show signs of recovery and resilience, despite ongoing global economic challenges, according to Knight Frank’s H1 2024 report. The report provides a comprehensive overview of market trends, including the office, retail, hotel, serviced apartment, condominium, and landed housing sectors in Phnom Penh, highlighting both growth areas and ongoing challenges.
Ross Wheble, Country Head of Knight Frank Cambodia, emphasized the significance of the report, stating, “Our half-yearly review reflects a market that, while facing global economic pressures, continues to demonstrate resilience and adaptability. The Cambodian real estate sector is navigating these challenges with a cautious optimism, particularly as we see growth in certain areas and ongoing adjustments in others.”
Cambodia’s economy, which faced a slower-than-expected recovery in 2023, displayed encouraging growth during H1 2024. The Asian Development Bank (ADB) forecasts a 5.8% growth for the Cambodian economy in 2024, driven by increased exports and a revival of the tourism sector. This economic resilience is reflected in the real estate market, where various sectors show signs of rebounding.
Office Sector Overview
The office sector in Phnom Penh saw a moderate increase in supply during the first half of 2024. The completion of MK Tower, a 6,000 square meter office building in Sen Sok District, was the only significant addition to the market, offset by the removal of two office buildings, TM281 and Soma Tower, which contributed a total of 4,598 square meters of Net Lettable Area (NLA). As of H1 2024, the total office supply in Phnom Penh stood at 963,939 square meters of NLA, marking a 4.4% increase compared to H1 2023.
However, despite the growth in supply, the average occupancy rate recorded a marginal improvement, stabilizing at 59.3%, a 0.4 percentage point increase year-over-year. Rental rates, on the other hand, continued to decline across all office grades. Grade A and B office spaces are commanding rents between $10 to $25 per square meter per month, with the highest rents still concentrated in the city center districts of Daun Penh and Chamkarmon, which together represent nearly half of the city’s total office stock.
Wheble further commented on the office market, noting, “While the office sector has seen some stabilization in occupancy, the market remains competitive due to the ongoing increase in supply. We anticipate further pressure on rental rates as additional projects come online in the coming years.”
Retail Sector Challenges
The retail sector in Phnom Penh continues to face significant challenges, with declining occupancy rates and market rents persisting into H1 2024. The sector’s expansion, driven by the addition of 23,733 square meters of NLA across three new projects—Meanchey Avenue, The Connexion, and U-Mall Phnom Penh—has not been matched by an increase in consumer demand. The overall retail supply reached 863,440 square meters of NLA, representing a modest 3% year-over-year growth.
Compounded by this increase in supply, the average occupancy rate dropped to approximately 67%, a 1.5 percentage point decrease from H1 2023. Rental rates in prime shopping centers ranged between $20.00 to $30.00 per square meter per month, while secondary-grade retail spaces were priced between $10.00 to $25.00 per square meter per month.
According to Ly Hakim, Associate Director of Research & Consultancy at Knight Frank Cambodia, “The retail sector remains under significant pressure due to the oversupply of retail spaces and subdued consumer sentiment. Landlords are increasingly adapting their spaces to maintain occupancy, particularly focusing on food, beverage, and entertainment retailers, which continue to dominate the market.”
Hotel Sector: A Mixed Bag
Phnom Penh’s hotel sector saw the addition of two new upscale hotels—Novotel Phnom Penh BKK1 and Chaiya Palace Hotel—adding approximately 334 rooms to the market, bringing the total room stock to 15,377, reflecting a 5% increase over the same period in 2023. Despite this growth, the overall occupancy rate and average room rates remain below pre-pandemic levels.
STR data indicates that the average daily rates for Luxury & Upper Upscale hotels ranged between $128 to $156 during 2023, with occupancy rates averaging around 40%. The market for Luxury & Upper Upscale hotels has seen relatively flat demand over the past decade, but hotel operators and investors remain optimistic about the medium and long-term prospects for Cambodia’s hospitality sector.
Ly Hakim, Associate Director of Research & Consultancy at Knight Frank Cambodia, observed, “The hotel sector is gradually recovering, with international tourist arrivals showing strong growth in early 2024. However, the sector still faces challenges in returning to pre-pandemic levels, particularly in terms of occupancy rates.”
Serviced Apartments: A Growing Market
The serviced apartment sector in Phnom Penh experienced modest growth in H1 2024, with the addition of 53 units, bringing the total supply to 8,388 units. This sector, which targets both short-stay business guests and long-stay professional expatriates, saw its average occupancy rate increase by five percentage points to 55% year-on-year. Prime monthly rental prices for serviced apartments ranged from $980 to $1,300 for one-bedroom units and up to $8,000 for three-bedroom units.
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The market for serviced apartments remains competitive, with a growing number of internationally branded and operated serviced apartments entering the market. “The serviced apartment sector is benefiting from Phnom Penh’s increasing popularity as a business and leisure destination. The ongoing development of infrastructure and amenities is expected to support continued growth in this sector,” noted Law Kheng Fong, Executive Director of Valuation & Advisory at Knight Frank Cambodia.
Condominium Market: Signs of Stabilization
The condominium market in Phnom Penh saw the completion of seven new projects in H1 2024, adding 3,118 units to the existing supply, which now totals 53,158 units across 127 projects. The market is dominated by the Mid-tier segment, which now represents 57% of total supply, reflecting a shift towards more affordable and accessible housing options.
Despite the increase in supply, the market is showing signs of stabilization, with developers adjusting their strategies to focus on competitive pricing and smaller-sized units. The average developer’s selling price continued to decline, dropping to around $1,300 per square meter of net saleable area.
Wheble commented, “The condominium market is gradually adjusting to the new market realities, with developers focusing on affordability and location. We are seeing encouraging signs that the pricing correction may be nearing its bottom, which could support a more balanced and sustainable market in the near future.”
Landed Housing: Adapting to Market Realities
Phnom Penh’s landed housing sector expanded with the completion of 16 new projects adding over 4,196 units to the market in H1 2024. The total existing supply now stands at 91,510 units, representing a 9% year-on-year increase. The Mid-tier segment continues to dominate the market, accounting for 57% of the total supply.
Developers have shifted their focus towards completing existing projects on a block-by-block or house-type basis, rather than launching new developments. This strategy aims to ensure successful handovers and cater to the steady demand for specific property types, particularly shophouses and terraced houses.
Looking ahead, Knight Frank expects the Cambodian real estate market to face continued challenges, particularly in sectors with significant oversupply. However, the country’s young demographic and increasing disposable income, combined with ongoing infrastructure development, offer a promising outlook for long-term growth.
This detailed overview of Phnom Penh’s real estate market as presented in Knight Frank’s H1 2024 report underscores the complexities and opportunities within Cambodia’s evolving economic landscape. Download the full report here.
