Increased GDP and FDI has helped drive both demand and supply for the office sector. Demand from international occupiers looking to enter the emerging market of Cambodia has remained strong.
The office market remains positive with the imminent arrival of the Vattanac Capital – Cambodia’s first international Grade-A office building – due for completion in Q1 2014. This will set a new precedent for future development, whilst bringing further confidence to the expanding office sector.
Phnom Penh’s 190,000 sq.m of office stock is set to increase by 30% over the course of 2014, with the completion of Vattanac Capital Tower (34,000 sq.m) and GT Tower (15,000 sq.m).
Occupancy rates remain positive, with the majority of medium-sized Grade B/C multi-tenant office buildings enjoying 90%+ occupancy. The current office vacancy rate across the market for multi-tenant purpose built office buildings stands at 18%, equating to a total of 34,200 sq.m available office space.
The majority of office space in Phnom Penh is still low grade by international standards, as outlined on page 2. High end office space of Grade B+ remains limited, equating to 15% of the current stock.
Established occupiers continue to increase absorption rates through expanding their requirements, generally taking additional space within their existing building, or relocating in search of larger floor coverage.
Transactions in the 50 -100 sq.m range will dominate moving into 2014, much as they did in 2012/2013, especially for logistics and manufacturing companies arriving from countries such as Korea, Japan and China, as well as other areas of Asia.
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, whilst landlords have benefitted from the additional income-stream of up to $160 per space per month.
The prime-rent index across Phnom Penh shows an annual growth of 3%, with further prime rental growth expected during 2014.
Whilst well located grade-B offices have enjoyed a 10% annual increase, Grade-C space has declined slightly, with a number of tenants looking to improve their professional image by relocating into higher quality offices.
Across all international office grades the current market average rent equates to $15/sq.m. This is set to increase with the launch of the Vattanac Capital which will raise average rents.
The slow release of new, high-quality office accommodation, combined with strong market demand for new space can be attributed to the continued annual growth in achieved rent.
Increasingly, international businesses favour Cambodia, in particular Phnom Penh, due to the sustained economic growth and the integration with the Association of Southeast Asian Countries (ASEAN) in 2015.
The association aims to establish accelerated economic growth, social progress, cultural development and the protection of regional peace and stability.
Recent political unrest appears not to have deterred international businesses from exploring the Phnom Penh market.
The number of service providers entering the market is on the increase, collectively representing the largest new occupier of office space in early 2013.
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:
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 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 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.