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The two commercial real estate sectors demonstrate forward momentum as of the first half of 2024
July 26, 2024 | Staff Reporter | Cambodia | Developers
The Phnom Penh’s office space sector’s overall occupancy rate has grown to 61.8% in the first half of the year and retail space to 58.7%, according to the latest market surveys of Phnom Penh-based agency and real estate consultancy, CBRE Cambodia, as detailed in the firm’s mid-year 2024 report this month.
The two commercial real estate sectors are demonstrating some forward momentum as of the first half of 2024, following a post-Covid period dominated by a heavy supply of new office and retail locations coming online in the capital city, and limited uptake by new commercial tenants. In the office sector, strong demand for office space this year is apparently absorbing ongoing increases in the overall supply.
According to the report, 198,000 square meters of new office space is in progress for completion within 2024, predominantly of Grade A and B quality. Over 31% of this new supply has already been completed in the first half of the year. The report also highlights a significant shift by commercial property developers towards strata-titled office space developments in Phnom Penh in recent periods, allowing foreign ownership of units within commercial buildings by individual or commercial foreign investors, as opposed to renting.
Over 35% of office space in the capital city’s estate market will be strata-titled by the end of 2024, according to the real estate firm’s surveys, creating significant opportunities for foreign direct investment (FDI) into the sector. In terms of current rental rates for office space leases, the report confirmed Phnom Penh’s average asking rental rate is $27 per square meter per month, across various grades. The rate is attractive to new business startups considering business in the region, given the rental rates competitiveness compared to nearby comparisons.
Phnom Penh office space is more affordable compared to its neighbours, with Bangkok averaging prices of $33 per meter per month and Ho Chi Minh $46 per meter, as of H1 2024. However, despite lower prices for office space, occupancy in neighbouring cities remains higher than Phnom Penh’s current uptake, with Bangkok office space experiencing 79% occupancy as of H1 2024 and Ho Chi Minh hovering around 80%.
In terms of retail space, the report suggests more challenges in terms of demand facing the sector currently, influenced by reductions in consumer footfall. According to the report, Phnom Penh retail space remains the lowest priced in the region, with prime retail average quoting rents around $27 per meter per month.
In comparison, Bangkok prime retail average quoting rents are around $60, and Ho Chi Minh central business district (CBD) around $240 per meter. Non-CBD retail space in Ho Chi Minh demonstrated average quoting rents of $50 meter per month. Similarly to the office segment, retail space supply continues to increase despite some market challenges, with the total supply projected to exceed 800,000 square meters by 2025.
Phnom Penh’s occupancy is also considerably lower than neighbouring cities as of H1 2024, alongside spiralling supply. Retail space in Bangkok saw around 83% occupancy in H1, and Ho Chi Minh’s CBD around 95%. Non-CBD retail space in Ho Chi Minh demonstrated around 88% occupancy, according to the report. Retail space within shopping malls represents a key driver of the sector, noted the firm’s findings, and currently accounts for 45% of the total supply.
A key driver of uptake in 2024 is incoming food and beverage brands looking to enter the market. However, a previous growth sector, the fashion industry, is seeing a slowdown in new entrants, with some brands reducing store locations and consolidating operations amid subdued consumer demand.
The CBRE report noted that to sustain footfall and raise revenue, retail operators in Phnom Penh of all kinds are consistently having to innovate marketing strategies, focusing on engagement and sales stimulation.
