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Phnom Penh Office Market – CBRE Cambodia MarketView in January 2014

January 2014_1

 

NEW SUPPLY REACHES PHNOM PENH OFFICE MARKET IN 2014, SUPPORTING INTERNATIONAL BANKING & SECURITIES

January 2014Multinational corporations continue to drive  Phnom Penh’s frontier office market, welcoming new supply in 2014. With a forecast increase in supply of 23%, Phnom Penh will for the first time see office segmentation, with a range of quality grade developments being introduced.

Supply

The office market will see the introduction of approximately  52,000 Sq.m of new supply by the end of 2014, with 17% of the total market share being attributed to Vattanac Capital.

The highly anticipated development, opens 23 storey’s of prime location, grade A accommodation in May 2014, setting a new precedent for future developments, bringing confidence to the expanding sector.

In late 2014, GT Tower, located close to the sought after Olympia development, will introduce a further 15,000 Sq.m of Grade-B/C accommodation to the market, in addition to other developments such as Urban Land, and California House.

The office sector responded to interest in Cambodia’s market from international banking, securities, and other MNC’s throughout 2013. Occupancy rates remain positive, with the majority of medium sized Grade B/C multi-tenant office buildings enjoying occupancy rates of 90%+.

The current office vacancy rate across the whole market for multi-tenant, purpose built office buildings standing at 81%. The majority of office space in Phnom Penh is still low grade by international standards, with Grade A and B+ properties equating to 33% of the current stock.

Demand

Established occupiers have continued to increase absorption rates across the sector through their expanding requirements. In previous years, tenants have had opportunities to expand within their current buildings, however in late 2013/ early 2014, the demand for larger floor coverage prompted relocations, primarily due to the lack of immediately available accommodation within quality developments.

Much as they did in 2013, transactions in the 50-100 Sq.m range will dominate moving through 2014, primarily by logistics and manufacturing companies arriving from China, Japan, and Korea amongst others.

International banking and securities will dominate larger transactions of 500-1000 Sq.m. The introduction of new supply will provide tenants larger floor plates of 1,600-2,000 Sq.m, offering an opportunity occupy more efficient and effective tenancies. However the key point of focus remains the fact for the first time we will see office segmentation, with a range grades introduced across new supply.

Parking Provisions  remain in high demand across Phnom Penh, with office properties such as Phnom Penh Tower taking additional space to provide further parking facilities for their development to accommodate increasing occupancy levels. Landlords have benefitted from an additional income-stream of up to $160 per space per month.

Rents

The prime-rent index across Phnom Penh shows an annual growth of 10%, with further prime rental growth expected during 2014.

Limited new supply in 2013 allowed landlords to increase rents in accordance to the performance of their properties. Rents across all grades increased, as lower grade properties capitalized on the lack of available space within Grade-B or above properties.

Increased occupancy in Grade B+ properties drove rents in excess of $20/Sq.m, with Vattanac Capital achieving rents in excess of $30/Sq.m, highlighting the increased requirements of tenants to establish themselves within quality commercial properties.

Strong market demand for new space can be attributed to continued annual growth in achieved rent. Across all international office grades, current market average rents equate to $18/Sq.m.

Business Attraction

In addition to sustained economic growth, Cambodia is likely to remain favorable to international business in 2014, in anticipation of the integration with the Association of Southeast Asian Countries (ASEAN) in 2015.

Political unrest deterred international interest in the Phnom Penh market in Q4, 2013, with many prospective tenants halting all activity. However, recent stabilization has prompted the reassessment of long term prospects, with tenants actively pursuing new leases in established developments.

International Office Grading

Although no definitive system for assessing office standards exists,  there are a number of factors that generally contribute to the grading of commercial premises; including age, location, maintenance, length of leases, landlord credibility and rated tenants. To find out more about Grade A, B or C office space, a general definition follows:

Grade A

Typically, office buildings within the Grade-A bracket are brand new or have been recently redeveloped, or have experienced a thorough refurbishment. The properties are prestigious and usually occupy prime locations within major cities. Along with the standard of the building itself, Grade-A offices will also possess high-quality furnishings, including state-of-the-art lifts, suspended ceilings, and compliance with international Health and Safety legislation; excellent accessibility and location. The property will be finished in order to compete for premier office users, typically appealing to an international market. These properties are often occupied by banks, high-priced law firms, investment banking companies, and other high-profile companies.

Grade B

Grade-B office space refers to properties that fall below the Grade-A remit, typically in terms of location, facilities and maintenance. The majority of businesses seeking office space will usually opt for a Grade-B property, as rents are often cheaper and supply is more readily available than the more prestigious Grade-A offices. Grade-B offices are usually maintained and finished to a good or fair standard, with adequate facilities. Materials used in the construction or fit-out of the building are functional but are not considered to be the highest quality. These properties are sometimes ex-Grade A. They are often found in the suburbs or slightly cheaper areas, as opposed to Grade-A offices which typically occupy the most sought-after locations.

Grade C

Grade-C offices provide functional space for tenants looking for low rents. The fit-out is usually much lower quality than A or B Grade properties, while internal furnishings and decoration are usually not maintained regularly, or to a high standard due to a low level of property management. The properties location and access is normally far inferior to that of high graded office space.

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