Retail Market Phnom Penh, CBRE Cambodia MarketView in September 2014

September 2014 300x24 Retail Market Phnom Penh, CBRE Cambodia MarketView in September 2014

ECONOMIC INDICATORS BODE WELL FOR FUTURE RETAIL AS NEW SUPPLY IS MET BY DEMAND

September 2014 1 88x300 Retail Market Phnom Penh, CBRE Cambodia MarketView in September 2014Introduction

June of this year saw the opening of Aeon Mall adding 66,000 Sq.m of space and 173 units to Phnom Penh’s retail sector. Foreign brands and franchises dominate in each category and the mall has Cambodia’s largest food court with 1,200 seats. Opening with a reported zero vacancy rate has been a great success story for Aeon when compared to the market average rate of approximately 22%. This can be attributed to factors such as new market entrants, expansion of existing operators and a lack of quality leasehold management at existing centers constraining returns for owners and occupiers.

Parkson is set to open a retail center in Q4 2015 adding retail space of 36,000 Sq.m mall anchored by department store as part of the 70,000 Sq.m Phnom Penh City Centre development also incorporating a supermarket, multiscreen cinema and IT/Electronics mall. This will continue the transition of Phnom Penh’s retail sector from existing traditional markets towards International quality, purpose built retail centers that in turn will draw more International brands to this developing market.

Supply

2014 has seen some of the city’s biggest developments come to fruition with Vattanac Capital and Aeon mall completing in the first half of the year adding a combined 71,000 Sq.m of prime retail space to Phnom Penh’s retail sector. 2015 will see Parkson mall and department store open adding a further 70,000 Sq.m. This will see total retail supply more than double from 105,000 Sq.m in 2012 to more than 300,000 Sq.m by 2016. Q2 2014 also saw the soft launch of Vattanac Capital’s retail offering including international brands such as Hugo Boss, Longchamp, TWG and Rimowa.

Demand

Speaking at the opening launch of Aeon mall, Managing Director, Shinobu Washizawa said the mall target customer group was aged 20 – 30 years old; a sign of Cambodia’s young demographic and fledgling middle class with increasing disposable income. Economic indicators are encouraging with GDP growth at 7.2%; one of the fastest rates in the world. With purpose built, International quality retail space now available many foreign brands, including 43 Japanese retailers have opened outlets in Cambodia for the first time. Aeon has seen a much lower vacancy rate than the market average with demand coming from local and international players.

Rent

Average rent* across the shopping centers stands at $27.30 per Sq.M ranging from $20 to $32 per Sq.M, the arrival of International operators such as Aeon and Parkson has seen the introduction of modern rental practices such as turnover rents.*(Average market rents calculated on Ground floor & 1st floor basis)

Brands

A range of new brands have entered the market for the 1st time including:
F&B: Breadtalk, Kenny Rodgers Roasters, Beard Papa’s, S&P, Pepper Lunch and Lotteria.
Fashion: Giordano, Clarks, H.E. by Mango, Penshoppe, Lowrys Farm, Bonia, Carlo Rino, Flaxus Tokyo and Wacoal.
Other: Toni & Guy, L’Occitane, Rimowa, Daiso Major Cineplex and Future World (Apple).
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. The Lucky Department Store closed on Monireth, Levi’s relocated to City Mall on the other side of the street, Campore Group opened multibrand Central Mall at Central Market.

Future Supply

Phnom Penh will see major increases in supply of retail space over the next two years with gross floor area for purpose built multi-tenanted retail set to increase by more than150% by the end of 2014 with an additional supply in the pipeline through to 2017 with developments Olympia by OCIC and The Bridge by Oxley under construction with a second Aeon mall now in early stages of discussion. Parkson confirmed 2 additional projects, Lion City and above mentioned The Bridge by Oxley where they will manage the retail component. With established retail developers Aeon, Parkson and Hongkong Land responsible for this new supply the quality of space and management is set to increase prompting an uplift in average rents; competition from these established shopping center operators is likely to weigh further on performance of older centers already witnessing lower occupancy and customer footfall in their centers.

Overview

Cambodia has a young population with over 30% under the age of 15 and a further 21% aged 15-24. GDP per capita growth was last recorded at 6.6% and although largely a rural population there is an urbanization rate of 3.25% per annum. This is a demographic picture that bodes well for future retail demand with a youthful workforce, and growing urban population. Incomes are rising fast; albeit from a low base but discretionary income is becoming achievable for many families for the first time. A recent report calculated the Cambodia GNI at $950 per capita; fast approaching the World Bank definition of a middle income-economy at $1,045.

Retail supply is set to grow in coming years but CBRE feel this will be met by demand due to improved quality of retail space, international management and the sectors growth potential. 2014 has seen a number of International brands enter Cambodia for the first time and this is a trend set to continue as the country enjoys improved political stability and, increased local demand.

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Phnom Penh Office Market, CBRE Cambodia MarketView in August 2014

August 2014 300x24 Phnom Penh Office Market, CBRE Cambodia MarketView in August 2014

FLAGSHIP DEVELOPMENT VATTANAC CAPITAL SEES FIRST TENANTS ARRIVE

August 2014 1 85x300 Phnom Penh Office Market, CBRE Cambodia MarketView in August 2014Demand across Phnom Penh’s office market is principally being driven by multinationals from the international financial services sectors. Supply in 2014 has increased after seeing limited space come onto the market in 2013, with a notable increase in quality recently delivered by Vattanac Capital. Phnom Penh can now boast office segmentation, with a range of quality-grade options offering available space.

Supply

2014 should see approximately 52,000 sq.m of new office supply delivered, with 17% of total supply now attributed to the recently launched office component of Vattanac Capital.

The highly anticipated development launched 23 storeys of grade A accommodation in Q2 2014, delivering a new level of space to Phnom Penh’s expanding office sector. A number of smaller developments are also due to come on-stream over the course of 2014. A further 15,000 sq.m of grade B/C space is set to arrive by Q1, 2015.

The Bridge, a joint venture between Singapore’s Oxley Holdings and Cambodia’s World Bridge Land, scheduled for completion by 2018, recently launched the off-plan sales of their Small Office Home Office (SoHo) concept, located within the mixed-use development.

Occupancy rates remain broadly positive, with the majority of Grade B/C multi-tenanted office buildings enjoying occupancy rates in excess of 90%. Overall occupancy rates decreased in Q2 as new supply arrived onto the market.

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 current stock.

Demand

The majority of new demand can be attributed to multinational corporations, in sectors such as banking, finance and securities, moving towards larger floor plates, with requirements typically in excess of 250 sq.m.

Parking provisions remain a key requirement of the majority of tenants, with various measures being taken by office buildings, such as Phnom Penh Tower, to provide further parking facilities, principally as a result of high occupancy levels.

Rents

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

A lack of new supply in 2013 saw landlords increase rents in accordance with the performance of their buildings. Rents across all grades increased, as lower grade properties capitalised on the lack of available space within Grade-B or above buildings.

Increased occupancy in Grade B+ properties drove rents to 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 developments.

The growth in achieved rents across the market can be attributed to steady international demand. Across all international office grades, the current market average rent per sq.m stands at $20.

Business Attraction

Cambodia is likely to remain favourable to international business, throughout 2014 and into 2015, as integration with the Association of Southeast Asian Countries (ASEAN) comes into force next year. This is anticipated to further stimulate demand for office accommodation from regional occupiers.

Renewed interest in Phnom Penh has been observed following the recent ending of the political deadlock between the ruling Cambodian People’s Party (CPP) and the Cambodia National Rescue Party (CNRP).

An agreement reached at the end of July led to CNRP legislators resuming their seats in the National Assembly .

Phnom Penh’s Standard Office Leasing Terms

The following terms and conditions usually apply to office leases in Cambodia, but should be used as a guide only. Professional legal and surveying advice should be sought before entering into any binding contract.

Lease Length: Generally, leases for commercial office space in Phnom Penh are for two years or longer. It is possible to have a lease term for less than two years, but landlords usually request a higher rent for the increased flexibility.

Service Charge/Management fee: This usually pays for all costs incurred running the building such as routine maintenance of all major plant & equipment, security, cleaning etc. Most older office buildings in Cambodia do not charge separate management fees, but for newer buildings the management fees are between $2-5 psqm. In more mature markets, audited accounts of the expenditure are provided to the tenant at the end of the year, but this does not happen yet in Cambodia.

Deposit: Dependent upon lease term, but generally 3 months’ gross rental, non-interest bearing, refundable upon expiry of the ease subject to performance of rent and repairing covenants.

Rent-free fitting out period: The amount of office space leased, the cost psqm and length of term determine the amount of rent free period. Presently, it ranges from 1 week to 3 months.

Fitting-out costs: The capital costs of fitting out, including loose furniture but excluding office equipment, the price can range dramatically from $80 to $400 per square meter.

Renewal provisions: There are no statutory rights of renewal in Cambodia and the landlord and tenant negotiate new terms close to lease expiry. However, the lease renewal procedure can be incorporated into the contract including maximum rent increases on renewal to protect the occupier.

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Phnom Penh Condominium Market, CBRE Cambodia MarketView in July 2014

July 2014 300x24 Phnom Penh Condominium Market, CBRE Cambodia MarketView in July 2014

PHNOM PENH CONDOMINIUM MARKET CONTINUES TO EXPAND FOLLOWING SUCCESSFUL OFF-PLAN SALES

July 2014 1 105x300 Phnom Penh Condominium Market, CBRE Cambodia MarketView in July 2014INTRODUCTION
The condominium market in Phnom Penh is continuing to expand, driven by successful off-plan sales of high profile projects, such as Nuri D&C’s De Castle Royal and Oxley Holdings’ ‘The Bridge’.
CBRE has seen a significant increase in investment from Singaporean, Japanese, Hong Kong and Chinese residents. Although the comparatively high yield guaranteed by a number of leading developers is appealing to oversees purchasers, the main driver remains anticipated capital growth.
Currently, there are 24 Condominium projects in Phnom Penh, including both finished projects and developments currently under construction.
The growing confidence in Phnom Penh’s condominium market continues to drive further development activity with a significant pipeline of planned projects due to come online through until 2018.
SUPPLY
Phnom Penh is set to experience a significant increase in supply, with De Castle Royal imminently set to deliver 414 condominium units and with Galaxy Residences set to deliver further 44 condominium units in Q4, 2014.
Overall supply in Phnom Penh is due to increase by 191% by 2018, driven by large-scale new projects such as D.I. Riviera and Olympia City, both currently under development by OCIC.
SALES
Sales of condominiums in Phnom Penh have traditionally been heavily marred by publicised failures of developments that have been sold off-plan and then subsequently ceased construction. Due to the successful completion of key new projects, such as De Castle Royal, this trend has clearly come to an end as confidence grows amongst domestic and international purchasers.
Impressive off-plan sales rates have been reported by a number of leading developments, with The Bridge’, located in Tonle Bassac, having successfully achieved a sales rate of 85% for the condominium units, within 4 months of launching their sales campaign at an exhibition in Singapore.
Achieved prices for high-quality condominium units range from $1,500 – $3,000 USD per sq.m in central areas of Phnom Penh. The Bridge, which is due to deliver a 762 condominium units, in addition to 963 ‘SoHo’ units and further retail space, accounts for the upper figure.

July 2014 2 300x174 Phnom Penh Condominium Market, CBRE Cambodia MarketView in July 2014

DEMAND
Demand for condominiums is anticipated to increase and be met by supply in 2014 through to 2015. The introduction of high quality products in downtown locations will offer prospective investors an opportunity to acquire products that focus on the needs of a heavily expatriate driven area of the Phnom Penh residential market, as foreign nationals continue to require exclusive and up market accommodation in popular locations. Demand is also increasing from an ever more affluent domestic population, which is due to account for a notable proportion of purchasers over the coming years. Domestic demand is a key element of a successful condominium project, due to foreign ownership of an individual building being restricted by law at 70%.
OVERVIEW
Q2 2014 witnessed the sales launch of Oxley Holdings’ ‘The Bridge’ mixed-use development, which comprises a total of 762 residential units. The high off-plan sales rate, which currently stands at 85% , with only one-bedroom units remaining, highlights the strength and appeal of the market to international purchasers, with the majority originating from Singapore. It is important to note, however, that there has been significant domestic interesting in the project.
The successful launch of De Castle Royal, which will set a new benchmark for quality in the market, will further add strength to the ever-growing sector. Comprising a total of 414 units, the project has been key in rebuilding confidence off-plan sales market.
CBRE note that a number of individuals, in addition to established developers, are making considerations towards the construction of further condominium developments, reinforcing their focus on the market, and furthermore their confidence in it.

Condominium Definition – A condominium (or condo) – also know in some countries as an apartment or flat – is a building where individuals have freehold strata title of their own residential unit and where the common areas such as lifts, swimming pools and gyms are jointly owned by all the co-owners. In Cambodia, foreigners are allowed to own up to 70% of the total area of a condo building with the exception of the ground floor.

 

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Land and Investment, CBRE Cambodia MarketView in June 2014

June 2014 1 300x35 Land and Investment, CBRE Cambodia MarketView in June 2014

 

June 2014 86x300 Land and Investment, CBRE Cambodia MarketView in June 2014LAND AND INVESTMENT OVERVIEW

During the Khmer Rouge period from 1975-1979 the land title system was completely abolished and all records of previous land titles were destroyed. The land titles system was not re-introduced until 1992 when the land law was passed, enabling people who have lived on the same piece of land for 5 years to qualify for titles. Currently, land in Cambodia is either owned privately or by the state but not all land is registered as the land system remains underdeveloped. Investors are advised to check whether a proper land title exists.

Land titles are represented in two forms soft and hard title. Soft title refers to a title where a property is registered at the local municipal level but which cannot be used as collateral for bank loans while hard title refers to a title issued at the national government level which can be used a collateral for bank loans. Hard title is the most secure form of ownership. However, the majority of transactions still occur for land with soft title to avoid high transaction costs which include property registration taxes and ownership transfer fees. Private freehold ownership is permissible for all types of land but the full ownership is restricted to Cambodian citizens or companies with the majority of shares being owned by Cambodian citizens.

Foreign investors are not allowed to acquire freehold land unless a land holding company is established with at least a 51% share controlled by a Cambodian citizen or company. Foreign investors can also use land in Cambodia under a long term lease. The maximum lease term is restricted to 50 years determined by the civil code established in December 2011. The lease structure system allows foreign investors to lease property if the property is properly registered with a land title certificate.

TAXES

Property Tax is levied on all property worth over KHR 100 million (US$24,000) in Cambodia. The tax is payable annually by the owner of the property at a rate of 0.1% of the government assessed value.

Unused Land Tax is payable for all unused land. The tax is calculated at a rate of 2% of the market value of the land per square meter as determined by the Unused Land Valuation Commission of the Ministry of Economy and Finance. The unused land tax is paid annually by the landowner.

Property Transfer Tax is levied on a sale of land with Hard Title, at 4% of the assessed property value determined by the tax department, by the purchaser.

INVESTMENT ANNOUNCEMENTS

A number of significant developments / transactions were announced or launched in 2014, as follows:

HLH Group announced that D’Lotus Development Ltd, of which it holds a 49% stake, entered into a Sale and Purchase Agreement with Shukaku Inc. to acquire 13,541 square metres of freehold land in Boueng Kak, Daun Penh, for US$14,895,000 (app. 1,100 USD per sq.m). The land is to be acquired for the purpose of a developing a mixed use scheme comprising office, residential and retail accommodation.

Plans to develop a new ‘Grade A’ office tower were announced by a group of investors, operating provisionally under the name of  ‘Kingdom Luxury Development Co.’ to develop a 25-storey office tower on Norodom Boulevard.

Oxley Holdings, with their partners World Bridge Land, commenced off-plan sales of the both the condominiums and the ‘SoHo’ units for their mixed-use development, The Bridge, located by the Australian Embassy in Tonle Bassac Commune.

City Star announced an extended minimum guaranteed yield of 6%, for a five year period, on all one-bedroom villas on Alila Villas Koh Russey. The decision was made due to strong projected revenue forecasts for the luxury-island resort.

Times Centre is shorty due to commence sales of the condominiums units within the mixed-use development located by Olympic Stadium.

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