PROPERTY | PHNOM PENH- How has Phnom Penh’s Real Estate sector performed in the first half of 2023

 

With an increasing amount of data available in Cambodia, across all industry sectors, we look at the recently released report from Knight Frank which delves into Phnom Penh’s real estate sector in the first half of 2023 and what data has been released since the report was compiled.

We have been seeing repeated key terms like oversaturation and a market that is struggling which we have also addressed over recent months, and that there has been a stabilisation in terms of developments now offering a more realistic adjustment of prices and that quality developers and better quality development are still doing well.

Phnom Penh Office Sector H1 2023
The total existing supply of office space in the first half of 2023 reached 917,378 sqm NLA (Net Leasable Area). For foreign buyers, it should be noted that stratified office space now makes up 29% of the total supply (263,568 sqm).
In terms of the quality of the office sector:

• Grade B offices – 46%

• Grade C offices – 31%

• Grade A offices – 23%

The average office rents have declined – rents for Grade A start from as low as USD $10 per sqm/month compared with pre-Covid grade A rents starting from USD $23 per sqm/month.

Meanwhile, Grade B office rents range in price from USD $8 to USD $17 psq m/month, whilst grade C rents start from USD $6 p/sqm/month.

For future developments, it is noteworthy that 588,333 sqm are Grade A (90% of the future supply), while Grade B accounts for 10% of the future supply with no Grade C office space identified. There will be a major shift in the quality and pricing of office space as Grade A offices will account for a majority of Phnom Penh office supply by 2028!

Sangkats such as Daun Penh (25%) and Chamkarmon (23%) have the most office space. For the planned future office supply, a majority will enter 7 Makara (24%), followed by Chamkarmon (28%) and Daun Penh (21%).

Frank Knight expects “to see a number of significant office relocations as tenants take advantage of competitive rental rates and attractive incentives.”

2023 Phnom Penh Retail Sector
As we recently wrote, the southern districts of Phnom Penh continue to display promising potential and this is the case in the retail sector too.

H1 2023 saw the total existing retail supply reach 826,725 sqm NLA with three newly completed retail developments; The Peak Mall, The Ground Market, The K Ground Market adding a combined total of over 30,000 sqm.

• Cumulative retail space is projected to reach 1,121,564 sqm by 2025; growth of 35+ per cent over the existing supply.

• The average occupancy rate for the retail sector in H1 2023 is 69%.

The capital’s city centre has 39% of the retail supply and 61% are in the suburban areas (due to more affordable land and large spaces to develop the new megamalls). Sen Sok ranked as the leading area for retail (30% of market share), followed by Mean Chey (23%), Chamkarmon (15%), 7 Makara (11%), and Daun Penh (8%).

In terms of the quality of the retail space, 67% of the current supply is categorised as Prime retail, while 33% is Secondary.

For future projects, the cumulative supply is forecasted to reach 1,121,564 sqm NLA across 73 developments – this is an increase of 294,839 sqm (35%).

It should be noted that CBRE says there are 51 completed retail spaces with 650,000 sqm NLA, with 72 projects adding 890,000 sqm under construction.

The Frank Knight report says Phnom Penh “remains an attractive target for foreign and local developers and investors to keep an eye on.”

2023 Phnom Penh Hotel Sector
There were five new hotels completed adding 671 rooms in the capital – the total supply in Phnom Penh is 14,624 keys by the mid-2023.

As expected, Daun Penh (40%) and Chamkarmon (23%) are where most hotels are based.

• Midscale & Economy hotels account for 45% of the total supply.

• Upscale & Upper Midscale – 32%.

• Luxury & Upper Upscale – 23%

In terms of the projected future supply of hotels, 7,684 rooms are to be added by 2028.

There is a shift as Luxury hotels account for more than two-thirds of the total future supply with Upscale & Upper Midscale (20%) and Midscale & Economy (14%) – Phnom Penh will be able to cater for more high-end consumers.

Chamkarmon will also take over as the leading Sangkat with the most hotels (48 per cent) of total supply, followed by Daun Penh, BKK, and 7 Makara.

Phnom Penh Serviced Apartment Sector
Five completed projects added 305 units to the existing supply in Phnom Penh in H1 2023, bringing the total number of units to 8,258. In 2023, Boeung Keng Kang District remained the popular area and accounts for just under a third of the total supply.

For Phnom Penh’s future supply of serviced apartments, 746 units are planned and a majority of these will still be located in Boeung Keng Kang (29%), with Chamkarmon (23%) and Sen Sok (21%) the next two most popular areas.

The total cumulative supply of serviced apartments in Phnom Penh is expected to reach around 9,000 units by 2026 – suggesting growth of 9 per cent over the existing supply.

For pricing, the average rental price for a one-bedroom unit was approximately US$964 per month and up to USD $1,871 per month for a three-bedroom.

Phnom Penh Condominium Sector 2023
Eight new condominium projects were completed in the first half of 2023 – increasing the supply stock in Phnom Penh to 41,297 units (spread across 116 condominium buildings). Mid-tier condos account for 58% of the supply, followed by Core (20%), High-end (17%), and Prime (5%).

Chamkarmon has the highest number of condos in Phnom Penh (22 per cent), followed by Sen Sok (18%), Mean Chey (18%), Toul Kork (11%), and Boueng Keng Kang (9%) as the top five Sangkats.

By 2028, the total supply is projected to reach 83,023 units across 185 developments – this is a staggering growth of over 2 times the current supply in Phnom Penh in less than five years. The future supply still sees a majority of Mid-tier properties (55%) and Chamkarmon will still see the largest increase of 22% of future stock.

In terms of pricing:
• Average selling price of new off-plan launches in Phnom Penh was USD $1,800 per sqm.

• Rents now start from USD $300 per month for a 1-bedroom unit in a modern condominium with good facilities.

The report is confident there remains a growing trend of young Cambodians renting condos in central locations of the capital and domestic demand for condominiums is increasing.

Phnom Penh Landed Housing Sector (Boreys)
Fifteen new developments in H1 2023 increased the supply to 82,129 units,with Sen Sok seeing the market share of 21%of the total supply of landed housing in the market in the capital.

As much as 80% of the completions were Mid-tier, followed by Core (13%) and High-end (7%), as a result Mid-tier accounts for more than half of the supply in the capital (55%). A bulk of landed properties are located in the suburbs due to lower land costs as well as improving infrastructure.

By 2026, the total supply is estimated to 98,392 units (across 47 housing developments), which is a 20% increase over the current supply.

For rental pricing of landed properties in Phnom Penh in 2023, rental rates averaged at USD $220 for flat-houses (100-134 sqm) and up to USD $2,800 for single villas (650 sqm).

Post-Report Data
Since the report was published, some key data to take note of is that the Ministry of Land Management, Urban Planning, and Construction (MLMUPC) issued permits for the construction of 2,036 investment projects in the January to July 2023 (eight million square metres). Lao Tipseiha, Secretary of State (MLMUPC), said that the construction sector has begun to recover post-pandemic.

Other notable datasets are:
• Registered construction projects estimated to have a value of USD $2.97 billion in this period (Jan-July 2023).

• Foreign direct investment inflows in the first half of 2023 increased 41.6% compared to the same period in 2022.

• NBC reported that the construction and real estate sector imports of materials and equipment rose 0.4% in the first half of 2023 compared to 2022.

• The Asian Development Bank (ADB) has adjusted its forecast for Cambodia’s economic growth in 2023 to 5.3% – its previous projection was 5.5%.

The overall global economic market is still facing headwinds but investors won’t be looking to the short term.

The value of approved construction permits rose to US $1.3 billion in Q1 2023 which is 43% of the total value the whole of 2022 experienced.

The main reasons there is still a positive economic outlook are the combination of a strong tourism recovery, actioned free trade agreements, and large infrastructure development projects.