Building on success

What's next for Cambodia's property market

New high-rise office blocks, modern condominiums and sprawling shopping malls are becoming increasingly common in Cambodia’s cities, representing the continued rapid growth of the property market in the country

Written By:
May 25, 2019
What's next for Cambodia's property market
Construction in Phnom Penh’s Sen Sok district Photo: Nigel Dickinson for Focus Cambodia

All sectors of the property market, namely residential, retail and offices, are expected to see an increase in supply in 2019, particularly in the first half of the year as a result of a spillover of uncompleted projects from the end of 2018.

This is especially true of condominium developments, with the upward trend of mid- to high-end projects being completed in Phnom Penh to continue. According to James Hodge, associate director at Cambodian property services company CBRE, there will be a 120% increase in condominium supply this year, but it should be met by sufficient demand.

“We expect some moderation in rental rates because of the supply coming into the condominium sector, but demand for serviced apartments still looks to be good and occupancy rate in that sector still looks quite strong,” he says.

While growth is strongest in pricier developments, Hodge adds that he expects future supply and new launches to be “more focused on the affordable part of the market.”

“There needs to be one eye on the sustainability of affordable development, ensuring that supporting services and amenities are included in the developments aimed at the affordable market, and making sure that traffic congestion doesn’t cause too many issues around that development ground,” says Hodge.

Of the upcoming office builds, roughly half are strata-title, meaning the building is owned piecemeal by different entities, something that Hodge says marks “a significant movement” since the first strata-title only came on the market in mid-2018.

Retail supply is set to surge this year. Four new projects that were delayed last year due to construction issues are scheduled for completion by the end of 2019. As a result of this influx of new retail spaces and in addition to Aeon Mall Sen Sok City opening in 2018, vacancy rates are forecast to increase in 2019.

China remains the Kingdom’s major foreign investor with its companies accounting for roughly one third of the capital investment in Cambodia’s construction and real estate sectors, East Asia Forum reported in 2018. This is seen predominantly in coastal Sihanoukville, which has experienced a titanic, Chinese-backed property boom in recent years. That growth lies chiefly in the hospitality and residential sectors, but Hodge notes that Sihanoukville also has a good manufacturing base and that there are some office developments taking place.

One prominent Chinese-backed project is the construction of Phnom Penh’s third ring road, linking National Road 1 and National Road 4. Its development could see the capital city’s outer boundaries expanded and Hodge notes that “government planning policy looks to be supporting that shift very strongly.”

Land prices in Cambodia are increasing rapidly but remain comparatively low for the region. This makes the Kingdom an attractive market for investors, especially in Phnom Penh, which has the third-highest rental yield in Asia.

“Demand for serviced apartments still looks to be good and occupancy rate still looks quite strong”

Cambodia’s property market continues to attract both foreign and local investors as developments spring up both in the capital and around the country. James Hodge, associate director of real estate company CBRE, breaks down the burgeoning market.

What makes Cambodia such an attractive market for property investors?

I think the growth prospects, the dollarised economy, the rate of economic growth, the potential for the development of a wider, deeper consumer market and stable inflation and the economic indicators are generally pretty good. Cambodia is fairly accessible in terms of barriers to entry, so costs are generally quite low compared to other capital cities across the region.

James Hodge, associate director of real estate company CBRE

Chinese investment is much talked about here, but it isn’t the only country investing in the Kingdom…

China gets a lot of press and there are some very big names here and a lot of quite large-scale developments that are in progress at the moment. But, the mix of investment coming in is probably more broad when you dive deeper.

[There is investment coming from] Singapore, Korea, Japan, Malaysia to some extent – and Taiwan is also a major developer here.

We’re also seeing a broader mix of other investors looking at this market as well, [including] some investors from the US, from Thailand and Vietnam and even from the Middle East and Europe.

What are the up-and-coming areas for property developers in Phnom Penh?

Certainly Tuol Kork is looking like a very active area for new supply over the next 12 months, particularly in office and residential supply. Of course, the central districts – Tonle Bassac and BKK1 for residential supply are quite strong, but from a commercial perspective there’s not too much coming in the central districts in 2019. Most of the retail supply is focused on the edge of Phnom Penh and that goes forwards as well. We expect more new launches on the edges of the city rather than the centre.

What about country-wide?

We’ve been down in Sihanoukville a fair amount having a look, and there is an enormous amount of growth happening there. Siem Reap is a little bit of a steadier market and is still very much hospitality-focused. There are a few murmurs of commercial development in Siem Reap because the environment is pleasant and it seems to be suiting some occupiers. Then there are also the border towns such as Poipet, Bavet and then to some extent Battambang.

I think… regional centres such as Kampong Cham and other provincial centres will start seeing some deeper development, spreading out from Phnom Penh.

What are the main challenges for property developers in Cambodia?

Acquiring suitable land sites for development is one. A large number of international and local groups have been acquiring sites and putting together sites will become more complicated in coming years.

Infrastructure capacity is also something to watch. Traffic congestion doesn’t look like it’s going to improve any time soon so if [developments] are in a busy location that can have some limiting effects to the potential for development in certain areas.

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