Retail Market, Phnom Penh – CBRE Cambodia MarketView in February 2014

February 2014 300x25 Retail Market, Phnom Penh   CBRE Cambodia MarketView in February 2014

PHNOM PENH’S RETAIL SET FOR INCREASE IN SUPPLY AND ARRIVAL OF NEW INTERNATIONAL BRANDS

February 2014 1 87x300 Retail Market, Phnom Penh   CBRE Cambodia MarketView in February 2014Introduction

Phnom Penh’s retail landscape is undergoing a continued transition from traditional markets to international quality purpose built shopping centers and department stores. Consumer confidence and spending has continued to grow in Phnom Penh, benefiting the retail sector.

2013 saw the arrival of TK Avenue in Q4, a 7,000 sq.m net retail development, comprising 23 individual units, located in the Toul Kork area of Phnom Penh.

A significant increase in supply is due to be delivered over the coming 12 months, with Aeon Mall set to open in Q2 of this year, followed by Parkson City Centre in Q1, 2015.

Supply

7,000 sq.m of net retail space was added to the Phnom Penh market in Q4, 2013, in the form of TK Avenue. Vattanac Capital will shortly add  5,000 sq.m of net retail space with Aeon Mall set to deliver a further 58,000 sq.m of net retail space in Q2. Parkson will add an additional 70,000 sq.m of net retail accommodation by Q1, 2015.

Demand

There has been an increasing demand for luxury products or at least mid-tier brands in Phnom Penh. This change is being driven by a combination of positive GDP growth, an aspirational middle class and a young demographic, with an increasing disposable income.

Demand has increased in terms of entrants into the market although the majority of the brands have focused on stand alone units rather than existing retail space within shopping centers.

Despite this preference, the occupancy rate across existing shopping centers has risen by 2% y-o-y.

Rent

Average rent across existing shopping centers stands at US$27.30 per sq.m, ranging from US$20 to US$32 per sq.m.

This average rent per square meter is set to increase over the next two years, as the quality of space arriving onto the market improves significantly, with new, international tenants .

Brands

Notable mid-range brands, particularly from the food and beverage sector, have entered the market in the previous 24 months, such as Costa Coffee, Swensens and Tous Les Jours. Burger King recently opened its first stand-alone unit in the popular residential area of BKK1.

A number of key car bands are set to establish stand-alone units in Phnom Penh, with BMW arriving last year and Audi and  Land Rover set to open units over the course of 2014.

Future retail developments have signed commitments from a number of new international brands. New entrants entering the market over the next twelve months will be more focused of fashion and luxury goods, rather than food and beverages.

Future Supply

The biggest change in Phnom Penh’s retail sector will be the increased supply which is due to come online in the next two years. The gross floor area for purpose built multi-tenanted retail is set to increase by 142% in 2014, 21% in 2015 and 13% in 2016. The quality of supply will also increase with the introduction of international developers such as Aeon, Parkson and Hongkong Land entering the market. We anticipate that the significant increase in supply of high-quality shopping centers  will put strain on existing developments, although the increased demand from new international entrants to the Phnom Penh market will help to maintain occupancy rates across the sector.

Overview

With a GDP per capita growth Y-o-Y of 9.3% and young demographic with regionally high population growth rates, Phnom Penh has all the ingredients to facilitate a buoyant retail market. Households within Phnom Penh have a significantly higher income and expenditure figures than Cambodia’s national average with both figures being over double the national level. GDP per capita is expected to double by 2020 and over 30% of the population are below 15 years old. The significant supply due to arrive in the coming years. Cambodia does have a low percentage of urban population at approximately 20%, however, the rate of urbanization is regionally high at approximately 3.25%.

Supply is set to grow at a rapid rate in coming years but CBRE feel this supply will be met by demand due to improved quality of retail space, international management and the sectors growth potential. Whilst there may not be the critical mass in Phnom Penh compared to regional cities, the above demonstrates a growing sector with increased level of demand.

 

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Phnom Penh Office Market – CBRE Cambodia MarketView in January 2014

January 2014 1 300x24 Phnom Penh Office Market   CBRE Cambodia MarketView in January 2014

 

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

January 2014 85x300 Phnom Penh Office Market   CBRE Cambodia MarketView in 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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Phnom Penh, Cambodia – CBRE Cambodia MarketView in December 2013

 

December 2013 300x23 Phnom Penh, Cambodia   CBRE Cambodia MarketView in December 2013

 

PHNOM PENH PROPERTY MARKET REMAINS STRONG WITH SERVICED APARTMENTS CONTINUING TO THRIVE IN 2013

December 2013 1 91x300 Phnom Penh, Cambodia   CBRE Cambodia MarketView in December 2013Office

The office sector has shown signs of growth as occupancy rates have continued to increase across existing stock. New supply into the market  has been limited in 2013. This is due to change in 2014 with the  completion of Vattanac Capital in Q1 and GT Tower later in the year. Additional supply in 2013 was limited principally to the decline in new projects starting during the global economic crisis in 2009 and 2010. The majority of the market is still Grade C/D standard office space with a  45% and 28% share, respectively, of current supply. Grade B/B+ currently has a 27% share. Vattanac Capital will deliver Phnom Penh’s first Grade A office accommodation.

Retail

The number of mid range brands entering the market has increased considerably in the retail sector across 2013. A large number of these brands were associated with food and beverage outlets, such as Costa Coffee, Swensen’s and KFC. Of these brands entering the market most have chosen to occupy standalone retail outlets, due partly to lack of availability in established shopping centers. Supply is due to increase significantly in 2014, by 142%, with the arrival of Aeon Mall.

Condominiums

The demand for condominiums has increased significantly over the past year. Monthly absorption is increasing with most projects enjoying increased sales in 2013, with DeCastle Royal disposing an average of 9-10 units per month.

Apartments

Overall there remains strong demand for serviced apartment space in Phnom Penh. This demand is set to continue into 2014, with a number of new projects due to enter the market next year. The success of new serviced apartment complexes, in terms of occupancy, reflects this continued demand, as well as the increased occupancy of older properties. The high demand and lack of supply has lead to rent increases in both new serviced apartments and a recovery in values of older stock, which dipped in 2012. Serviced apartment occupancy averaged 95% in 2013.

Hotel

With increased visitor arrivals and international summits such as ASEAN, the hotel market in Phnom Penh has benefited. Hotels have experienced occupancy point gains with international arrivals into Phnom Penh increasing, accounting for a 20% share of all arrivals into Cambodia. International arrivals from Europe and the United States have continued to increase, as have tourists numbers from other  Asian countries, notably Japan and China.

Industrial

The full economic impact of recent political instability, combined with the ongoing protests amongst textile workers, has yet to become clear. In the short-term, rental values appear to have remained stable. Total exports rose to $5.794bn over the course of 2013, up from $5.22bn a year prior. Trade and investment relationships with Vietnam, South Korea and Japan have continued to strengthen.

 

PHNOM PENH’S LEADING MARKETS

December 2013 Office 172x300 Phnom Penh, Cambodia   CBRE Cambodia MarketView in December 2013Office

Occupancy levels across the market have increased Y-o-Y. The market currently has a vacancy rate of 18% with existing Grade B stock enjoying steady absorption. Phnom Penh as a whole is starting to see large scale MNC tenants enter the market, with office accommodation pre-let to occupiers, such as  Qatar Airways, in Vattanac Capital.

Rents across the market have increased on average by  3% with quality Grade B space seeing a 10% annual increase. Lower grade space has seen a decline in achieved prices, with companies seeking to improve their professional image. Rental rates stand at an average of $17 per Sq.M for international grade space.

Current supply for Phnom Penh as a whole is circa 190,000sq.m (GIA). This has remained the same as 2012. Supply in 2012 increased by 5%  with the launch of Yellow Tower. A further 34,200sq.m GIA of office space will be launched onto the market with the completion of Vattanac Capital in Q1 2014. Supply will increase by a total of 30% during 2014, with GT Tower set to deliver a further 15,000 Sq.M of office space.

CBRE is continuing to see current villa occupiers looking to relocate to purpose built office space to improve professional image and to maximize the efficiency of their rented office space.

December 2013 4 1 300x248 Phnom Penh, Cambodia   CBRE Cambodia MarketView in December 2013Retail

Current supply for purpose built retail space within Phnom Penh stands at approximately 150,000 Sq.M GIA, equating to approximately 86,000sq.m NIA. Shopping centers dominate the supply of purpose built multitenant retail buildings. Phnom Penh has developed considerably in the last ten years since the opening of the first shopping centre Sorya Mall in 2003.

TK Avenue arrived in Q4 2013, with supply forecast to increase to 350,000sq.m in the next four years. Vattanac Capital is launching approximately 5,000sq.m of net leasable area in early 2014, with Aeon Mall set to deliver a further 68,000 Sq.M later in the year, followed by Parkson Mall in 2015. Current demand has shown that most new entrants into the retail sector have opted for standalone retail outlets. However, this is mainly due to the lack of high quality well managed shopping centres currently on in the market. Vacancy rates in shopping centres are relatively high at 23.9%.

Rents in the more established shopping centres have stabilised in recent years, with average ground floor rents are achieving $40 per Sq.M. GDP per capita between 2006 and 2011 increased by 70%. This increase has created an emerging middle class within Cambodia that now look to become the main consumers of goods on the market.

December 2013 5 1 300x248 Phnom Penh, Cambodia   CBRE Cambodia MarketView in December 2013Condominium

2013  has seen a strong rise in demand for new condominium units, with projects, such as DeCastle Royal achieving sales of an average 9-10 units per month.

CBRE has see an increase in investment from both Japanese and Chinese clients that do not expect a high level of return upon their investment, and rather are investing on the basis of speculative capital growth.

Currently, there are 18 Condominium projects in Phnom Penh, inclusive of both finished developments, and developments under construction, with the main developers including De Castle and Canadia.

The construction market has responded to a lack in high quality condominium developments being provided within central Phnom Penh. With a number of new developments set to come online in early 2014, and through until 2016.

Sales of condominiums in Phnom Penh have been heavily marred in recent years by publicized failures of developments that have been sold of plan and have subsequently ceased construction. This trend has changed significantly over the course of 2013, as a number of key projects near completion. Sales figures have increased notably compared to 2012.

December 2013 Apartment Hotel 177x300 Phnom Penh, Cambodia   CBRE Cambodia MarketView in December 2013Apartment

In the last 12 months thirteen new good quality serviced apartment complexes have opened across Phnom Penh, up from seven in 2012. The majority of which are located in the south of the city, particularly around the Boeung Keng Kang I area.

CBRE have noted in the last year that there has been an increase in the number of Japanese expatriates coming into Cambodia. This can be seen by the increased number of Japanese companies entering Cambodia and opening up offices in Phnom Penh, such as the Bank of Tokyo, Mitsui and Itoshu.

Occupancy rates have averaged at around 95% across 2013, with a number of properties obtaining 100% occupancy. This is a strong indicator that there is still considerable demand from new arrivals into Phnom Penh for serviced apartment accommodation.

Rental rates have increased throughout 2013, with demand exceeding the limited supply delivered over the course of the year. Serviced apartment rental rates range from  US$11/Sq.M to US$25/Sq.M compared to apartments with rental rates of US$8/Sq.M to US$19/Sq.M.

2014 outlook

Office market supply is set to increase in excess of 30% in 2014. Vattanac Capital alone will account for 18% of the increase in supply, with GT Tower due to deliver a further 15,000 Sq.M. With the launch of Vattanac Capital Phnom Penh’s CBD is starting to take shape close to Wat Phnom. Other developments such as Hongkong Land’s Embassy Center and Acleada’s new HQ broke ground 2013, with Embassy Center due to complete in 2016. Rental rates in 2014 are set to increase, with Vattanac capital set to deliver a new record in terms of price per square meter. The arrival of new, high-quality space will likely lead to a decrease in rents of lower-quality stock.

The retail market is one of the sectors with the highest amount of demand. The sector is set to change significantly over the next few years, with the arrival of Aeon Mall set to deliver a further 68,000 Sq.M of high-end retail accommodation, representing a 142% increase. 2015 and 2016 will see a further 21% an 13% increases, respectively. Rental rates for retail space in prime locations within well managed multitenant buildings are set to increase.

Without improvement in management existing shopping centres are unlikely to be high in demand.

The condominium sector will see a large amount of supply arrive over the course of 2014, with DeCastle Royal set to complete at the end of Q2. Demand for condominiums is increasing as the city expands with land prices increasing the domestic market will start to look towards condominiums. Pricing will become more competitive but the market normality of buying off plan is set to remain.

The serviced apartment market is one of the strongest real estate markets within Phnom Penh. Although a number of units were launched over the course of 2013. The sector grew in strength with occupancy levels increasing to 95%. 2014 is set to continue to see rises in rent levels, with the  main competitor to this market being buy-to-let owners of completed condominium projects looking to gain a return from their investment. High demand is thought sufficient to serve the increase in supply due to enter the market in 2014.

 

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Cambodian Resort Market – CBRE Cambodia MarketView in November 2013

CAMBODIAN RESORT MARKET BOOSTED BY INCREASING NUMBER OF INTERNATIONAL ARRIVALS MOVING INTO 2014

November 2013 111x300 Cambodian Resort Market   CBRE Cambodia MarketView in November 2013The number of tourist arrivals to Cambodia has increased significantly in the past four years following a period of uncertainty within the sector, adversely affected by the effects of  the global economic crisis throughout 2008 and 2009.

Cambodia had received over three million arrivals by the end of September, 2013, with almost half of these flying into one of Cambodia’s two International Airports. With the ever increasing numbers in international arrivals, Cambodia’s resorts are now becoming a favorable investment opportunity in Cambodia.

The high number of visitors has continued to increase, despite the ongoing political unrest in the capital, Phnom Penh, which has remained predominantly peaceful since the General election of July 2013.

Traditionally tourists have arrived to Cambodia at Siem Reap International Airport, attracted by the Angkor Wat temples, before moving on in some cases to Phnom Penh. In more recent years the Ministry of Tourism has pushed to diversify Cambodia’s ‘Tourism Trail’ and encourage the development of the coastal region as a new tourist destination.  In 2011 Sihanoukville was admitted to the prestigious  ‘Most Beautiful Bays in the World Club’ raising its profile internationally. The area has established itself as South East Asia’s latest cruise destination, with ships arriving directly from Indonesia, Singapore, Thailand and Vietnam.

The increasing numbers of international visitors has driven a demand for western style boutiques and resort style accommodation within Cambodia, with the first three quarters of 2013 experiencing an increase in international visitors of 18.6% Y-o-Y.

A resort that has stepped in to meet the demand of the increasing international elite traveler in this region is the award winning Song Saa Private Island  – Cambodia’s first luxury private island. Opening in March 2012 it offers five star villa accommodation, with a focus on sustainability and environmental awareness and a slogan of ‘Luxury that Treads Lightly…’ The resort also offers villas for sale for private ownership, with the owners returns based on the success of the resort, allowing for 30 days usage each year and a guaranteed yield of 8% for the first five years.

In 2013 the island of Koh Russey located approximately 10 kilometers from the coastal town of Sihanoukville was confirmed by Alila Hotels & Resorts to be the first internationally branded island resort to be built in Cambodia, developed by CityStar. CityStar plan to develop a low density project ensuring a high level of exclusivity and privacy with only 15% site coverage, comprising a total of  227 units (including 48 hotel suites) and luxury resort facilities and services. The first phase of the development is expected to complete in 2015, with the project set to become a pioneering development on Cambodia’s coastline.

Other developers that have been attracted to the region are KPIG on the Morocot Island development and Queenco Leisure Ltd who have a number of land plots close to the up and coming Otres Beach. A number surrounding island and land plots have been bought by developers who are now seeking investors to build resorts and infrastructure to support the influx of visitors in the area. Currently CBRE are working with the Royal Group in attracting investors to this unparalleled opportunity in the Gulf of Thailand.

Royal Group have signed a 99 year lease with the Cambodian Government for Koh Rong, to develop the island into ‘Asia’s first environmentally planned Resort Island’ and initiate high end international tourism on Cambodia’s coastline. The key attributes to this island are its location, size and natural beauty, with the construction of an airport planned in the first phase of development, Koh Rong is only approximately an hour flight from Bangkok and Singapore.

Both domestic and International airlines have recently announced plans to launch new flights from Siem Reap during the tourist season, with construction of the New Siem Reap International Airport (NSRIA) due to commence in early 2014, allowing for substantially higher numbers of tourist to be welcomed to Cambodia in the near future, further driving the need for developments such as Alila Hotels & Resorts and Royal Groups Koh Rong Island development.

November 2013 1 300x143 Cambodian Resort Market   CBRE Cambodia MarketView in November 2013

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