2021, a milestone for Office Space in Phnom Penh
Completed office space set to exceed 1 million square meters.
Phnom Penh –February, 23rd, 2021 – CBRE Cambodia’s research indicates that 2020 saw occupancy rates fall almost 8% year on year, to 76.5% its lowest level since 2016, with rents falling back in most sectors. This year the future of the sector is set to be affected by a range of shifting trends including further increases in supply and the changing face of business in The Kingdom.
In 2020, two factors contributed to an increased gap between supply and demand in the Phnom Penh office market. First, a substantial increase in new supply after several years of increasing rents and falling vacancy; second, a reduced level of demand brought about by the Covid-19 pandemic.
Last year, Phnom Penh saw 11 centrally owned office buildings completed, equating to 125,500 square metres, a 34% increase in space compared to 2019. However, with most companies putting key decisions on hold, the average size of an office transaction in Phnom Penh fell almost 31%, from 270sqm to 187sqm over the course of the year.
Thankfully, in 2021, centrally owned offices supply has largely been completed already. With fewer completions forecasted out as far as 2024, the market has some time to recover. However, the strata-title sector is set to deliver a record amount of new space, with more than 180,000 square meters set to complete in 6 projects, which represents a 166% increase in the strata-title format office space, on the top of a 33% increase during 2020. Together this will help to push total supply over the 1,000,000 square meter mark by the end of the year.
A fundamental evolution is taking place
In 2020 the market had exceeded the symbolic level of 500,000 square meters of centrally owned office space, increasing competition between landlords. The most recently completed centrally owned office buildings have set modern, higher quality standards on the real estate market in Phnom Penh, making older stock pale in comparison. Ultimately this forces owners to plan full refurbishments on older stock to keep up.
Last year, we experienced an overall decrease of rents. However, this general trend hides disparities, with a significant adjustment of the rents within Grade B market range whereas Grade C experienced a stability; benefiting from an Occupiers transfer to affordable options.
The market is forecasted to remain stable, during the first part of 2021, and then start to increase. The flexibility currently offered by landlords will enhance the occupiers to secure favourable financial positions for the next years, helping the market recovery.
“It will take years to reach the levels of late 2019 before Covid-19. Cambodia has joined globalisation: the market is now mature enough to face real asset competition; and the sector is directly impacted by the worldwide economic situation that will need time to recover after the unprecedent pandemic”. Adding, “overall, we‘ve got good reasons to remain optimistic, competition is always a positive component to improve market standards and Cambodia is probably one of the best places to be in terms of real estate with a very good sanitary situation and an outstanding potential for growth”.
Advisory and Transaction Services Manager for CBRE Cambodia