With the swift growth of Cambodia’s economy, which has maintained average expansion of 7 percent per year over the past two decades, the country’s property and construction sector is booming. Real-estate is attracting investment of more than $1 billion a year and has become a driver of economic growth.
As skyscrapers, apartments, condos and other residential developments expand, demand for office space in Phnom Penh has also grown, with Grade B and Grade C being the most popular for the tenants, recent research by CB Richard Ellis (Cambodia) Co. Ltd. found. The property firm’s senior associate director, Sothida Ann, discussed the status and outlook for the office segment with Khmer Times this week.
KT: What trends have emerged in the office segment over the past few years?
Ms. Sothida: According to our research, the overall office market has expanded 6 percent on average annually since 2010. Cambodia’s office market has more grades B and C units, while villas are still popular for office tenants.
KT: Is the current office space occupation rate balanced?
Ms. Sothida: Occupancy rates for office building remain positive, with the majority of medium sized grades B/C multi-tenant buildings enjoying occupancy rates of 90 percent. Overall office vacancy rates across the market stand at 22 percent due to the addition of 45,000 square meters in 2015.
KT: Are supply and demand equivalent?
Ms. Sothida: Supply and demand for offices in Phnom Penh are coming in line. Demand has been driven by established tenants who continue to increase absorption rates across the segment through their expansion needs.
In addition, there is a rise in domestic entrepreneurs and new international companies entering the market.
KT: Are tenants shifting from villas and flats to office buildings and is there enough space for them to do this?
Ms. Sothida: Stand-alone villas or shop houses are becoming limited within the city. Although the cost of rental per square meter for a villa is cheaper than an office building, the useable area of a villa is not efficient compared to a proper office building.
In addition, there will be high maintenance and security costs for villa tenants. So, yes we are seeing a trend of villa tenants shifting to office buildings and there is enough space for them to do this.
KT: Compared to neighboring countries, are rental prices more affordable here and is the supply of office space comparable?
Ms. Sothida: Supply of office space in Phnom Penh has more Grade B and Grade C, while our neighboring countries have more Grade A space. If we compare only Grade A there with Grade A here the prices are similar, but if we compare the entire market office rentals in Phnom Penh are 20-30 percent less expensive than they are in Bangkok and Ho Chi Minh City.
KT: The ASEAN Economic Community (AEC) will begin at the end of this year. Will demand for office space increase as a result?
Ms. Sothida: The AEC is good for ASEAN countries as cost and quality will become more competitive. We believe the AEC will help Cambodia move to the next level.
KT:What is your outlook for the office segment over the next few years?
Ms. Sothida: Supply and demand for rental offices in Phnom Penh will be in line for the next couple of years. However, the quality of office buildings needs to be improved in terms of health and safety. Currently, some office buildings have inadequate fire protection and there is a limited quality of property management. The requirement of car parking also has become increasingly important among tenants within the Phnom Penh office market.