Phnom Penh - July 13, 2023 - CBRE Cambodia is delighted to announce the launch of its Mid-Year Review 2023 Market Insights, providing essential updates on Phnom Penh's Commercial (Office, Retail & Industrial) and Residential sectors in the real estate industry for the first half of 2023.
On July 12, 2023, CBRE released our Mid-Year Review 2023 Phnom Penh Real Estate Market Insights report. "The challenges observed during the first six months of 2023 are expected to persist as there is a slowdown in the global macro context. Cambodia is more globalized than ever, and faces various head waves. With rising capital costs in response to soaring inflation and reduced consumption in Western markets have directly impacted the kingdom's exports, “causing a 30% decline in textile exports in Q1 2023, a segment making up 40% of total annual exports and employing 750,000 individuals.”. Additionally, Foreign Direct Investment (FDI) has declined due to China's struggles in its export and real estate industries," said Lawrence Lennon, Managing Director of CBRE Cambodia.
"However, as China and the world gradually reopen following the COVID-19 freeze, tourism, and business travel show promising signs of progress," added Lawrence.
Lawrence Lennon, Managing Director of CBRE Cambodia. (Pictures May Dara EAC News)
Office Sector:
This year, the new office supply is expected to continue increasing, with an addition of 215,000 sqm of office space set to be completed in 2023, pushing the total supply by 24% to over 1 million sqm. In the first half of 2023, approximately 39% of the expected new supply for this year was added to the existing supply.
The average occupancy rate across the market (centrally owned and strata title spaces) further decreased from 60% in the previous quarter to 58%.
Although quoting office rents across all grades in both central business districts and non-central business districts increased by 2% to 4% on a half-yearly basis, achieved rents remained the same. Since office asking rents experienced a significant drop of up to 20% since the peak in 2019, quoting rents have plateaued in the last 18 months. Rather than reducing quoting rents, landlords have opted for other incentives such as free parking space, longer rent-free periods, or tenant improvements. This has resulted in effective rents remaining compressed.
"With the upcoming supply in the rest of 2023 and fewer business expansions, leading to low demand for office spaces, we expect further pressure on office rents and occupancy levels for the remaining period of 2023," said Daluch Chin, Senior Manager, Valuation & Advisory of CBRE Cambodia.
Daluch Chin, Senior Manager, Valuation & Advisory of CBRE Cambodia. (Pictures May Dara EAC News)
Retail Sector:
Following numerous new launches and completions of retail projects in 2022, H1 2023 saw a slowdown in new retail completions. During the first half of 2023, new completions added over 39,000 sqm of retail space, increasing the total supply by 6% in 6 months. However, the supply is expected to grow further, with over 83,000 sqm remaining to be completed by the end of the year. Upcoming projects predominantly consist of community malls and retail podiums.
The occupancy rate slightly decreased from 70% at the end of 2022 to 68% by mid-2023. Quoting rents for shopping malls, retail podiums, and community malls plummeted between 4% to 5% over the past 6 months. Amidst the overall slowdown in the retail sector, prime high street rents continue to recover, reaching back to 95% of the 2019 levels.
"This contrast is due to retailers shifting their focus to prime high street locations for better footfall, prominence, and ease of B2C delivery access," said Daluch Chin, Senior Manager, Valuation & Advisory of CBRE Cambodia.
To attract footfalls, new retail projects are adopting innovative concepts and strategies. There is a noticeable trend towards activity-focused and entertainment-oriented tenant mixes," added Daluch.
Residential Sector:
After an aggressive expansion over the past few years, the residential real estate market in H1 2023 is facing tough competition in sales coupled with weakened demand. Only a few condominium and landed property projects in prime locations have managed to maintain or slightly increase their asking prices. The majority of developers continue to offer discounts and more favorable payment terms.
During the first six months of 2023, three new condominium completions introduced over 1,600 units to the pipeline, and ten project completions added over 4,600 units to the total supply. By the end of this year, the condominium supply is expected to reach nearly 55,000 units, representing a 16% increase year-on-year.
"Despite the slowdown, sales are still occurring for projects that are positioned correctly," said Kinkesa Kim, Deputy Managing Director of CBRE Cambodia. "Price, location, project quality, developer track records, and project size are the key factors." Kinkesa added.
Regarding landed property, the first half of 2023 saw the slowest quarter in terms of project launches in the past 5 years, with only eight projects launched compared to the peak of 88 projects in 2020.
Compared to the end of 2022, quoting sale prices adjusted downward between 2% to 5% for all unit types except for linked houses. However, year-on-year, the quoting prices of those unit types plummeted between 17% to 23%. Linked houses saw a 6% increase in quoting sale prices over the last 6 months and a slight adjustment of -1% year-on-year. This is due to the lower ticket price for this house type, making it more suitable for a wider pool of local home buyers.
"Despite efforts to provide competitive prices, flexible payment terms, and introducing innovative projects, over 280 landed property projects in Phnom Penh still have unsold houses. Sales progress remains slow due to reduced household income, inflation, higher interest rates, and competition not only among developers but also with distressed sellers in the secondary market," continued Kinkesa.
Kinkesa Kim, Deputy Managing Director of CBRE Cambodia (Pictures May Dara EAC News)
