Phnom Penh Office Sector
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PHNOM PENH OFFICE SECTOR PHNOM PENH Key findings OFFICE SECTOR Four new office buildings (comprising 53,342 sq m of Overall supply for Grade B offices in Phnom Penh now surpasses NLA) completed during H2 2019, Grade A whilst centrally-owned offices still remains dominant as increased Phnom Penh’s overall strata-title office supply is increasingly coming online office supply to 517,043 sq m of NLA, an 11.5% increase from H1 2019. Supply and Demand by Chip Mong Group, located within Of the four new buildings, Star City a commercial catchment area in close (Q3 2019) and The Fortune Tower Four completions of office buildings proximity to the Olympic Stadium and the (Q4 2019), pumped in 45,059 sq m of during H2 2019; Chip Mong Bak Touk, Olympia City mixed development. NLA to the strata-title office stock, Alpha Tower, The Fortune Tower and totalling 79,636 sq m of NLA, a drastic Star City, have pushed cumulative The current flexible space trend is increase of 130% from H1 2019. supply of office NLA to 517,043 sq m. influencing landlords to redesign their traditional office space to match the However, supply growth for centrally- As at H2 2019, the cumulative supply needs of the ever changing labour force. owned office segment decelerated of Phnom Penh’s overall office supply This is evident when Alpha Tower significantly with an increment of 2% stood at 517,043 sq m of net lettable area ceased operation during first half of from H1 2019. Chip Mong Bak Touk (NLA), a y-o-y increase of 24% from 2018 for renovation and reconfiguration and Alpha Tower, both completed the second half of 2018. Over the next and re-opened during Q3 2019. To during H2 2019, added 8,283 sq m of three years, the supply is forecasted to ensure its marketability, the landlord is NLA; bringing the total stock count up increase to 1,216,448 sq m of NLA, a 135% offering additional options ranging from to 437,407 sq m of NLA. increase from the current stock count. traditional office space to furnished office space, co working space and virtual office. Office vacancy rate continues to During H2 2019, Chip Mong Bak Touk rise to 18.2% (a 5.3 percentage and Alpha Tower have inaugurated, With the addition of various Grade point y-o-y increase from H2 2018) contributing 3,883 sq m (Grade B) B buildings over 2019, Grade B now mainly due to the higher vacancy and 4,400 sq m (Grade C) of NLA, dominates the entire office supply with rates in suburban combined with low respectively, to the centrally-owned office 48% market share, followed by Grade C occupancy of stratified office space. space existing stock. Whilst Star City and (42%) and Grade A (10%). The Fortune Tower, both Grade B, have As the market faces a softening each contributed 20,221 and 24,838 sq m Location continues to be the main pull occupier market, downward of NLA to the strata-title office supply. factor for most office tenants, hence, 91% adjustment for rental rates are of the office supply is located within the expected as the building owners Chip Mong Bak Touk is a wholly-owned city centre whilst the remaining 9% is in and individual investors of strata- retail cum office development; comprising suburban. Within the city centre, Daun title offices compete for tenants. a 3-storey retail podium with 5-storey Penh District still represents the most office atop. This project is developed office space with 28% of the total market share, followed by Chamkarmon (23%) and 7 Makara (21%). The rest are spread amongst Boeung Keng Kang (14%), Sen Sok Figure 1: (7%), Toul Kork (5%) and Mean Chey (2%). Existing Supply by District Daun Penh 28% More Grade B offices to come online 7 Makara between Year 2020 and 2021. 21% Chamkarmon 23% Between Year 2020 and 2021, assuming Boeung Keng Kang all our monitored projects complete 14% Toul Kork Chroy Sen Sok Mean Chey as scheduled, an additional 165,232 sq 5% Changva 7% 1% m of NLA will be added to the supply. 1% Chip Mong Bak Touk, Phnom Penh Source: Knight Frank Research 52% of this additional supply will be 2 PHNOM PENH OFFICE SECTOR Grade B space whilst Grade A and C will thus the average occupancy rate recorded a all within the Grade B category, had comprise 18% and 30%, respectively. slight uptick and improved by 3.4 percentage asking rentals ranging between $18 to $26 points (to 80.1%) compared to H1 2019. per sq m. The Fortune Tower stratified Three new projects were introduced/ office units are available for sale with launched during H2 2019; One Central The impending supply of office space prices ranging from US$3,000 to as high Tower (centrally-owned), Amass will continue to pressure the office rental as US$4,000 per sq m of the NLA. Tower (centrally-owned) and KVBC market, with vacancy rates expected Centre (strata-title). Both Amass Tower to rise. Upcoming new office buildings Office Sector Outlook and KVBC Centre are Grade B class in prime locations with better grades, contributing 7,511 and 5,357 sq m of quality building features and competitive Rapid growth in co-working space and NLA, respectively. One Central Tower rents will continue to be well received, serviced office noted in Phnom Penh. which is located in the suburban, Chbar compared to older buildings. Ampov District, will be a Grade A Demand for office space has grown office. No information of its NLA can be Strata-title offices recorded an in tandem with the incoming supply obtained to-date. occupancy rate of 54% during H2 2019. to-date. However, the high impending supply of office space is likely to cause Post 2022 will see the supply of Grade A Conversely, the average occupancy rate for a subdued-to-negative effect on rental offices surpassing Grade B and C. strata title offices was monitored at only rates and office vacancy rates are 54%, largely due to their recent completion expected to rise. To attract better quality Construction of new buildings continues and generally, strata-title offices do not tenants, apart from offering greater rental unabated, with 699,405 sq m of NLA due compete well with the remaining en-bloc incentives, landlords will be expected to come on stream between 2020 and space available in the market. to offer other inducements such as 2022, marking a 135% increase from the favourable lease terms for prospective current stock. Occupied spaces of strata-title offices were tenants and longer fit-out period. predominantly Grade B with 46.5% followed Prince Huan Yu Centre and Prince by Grade C with 7.4%. To-date, there were no To ensure marketability, landlords are also Financial Tower, both of which were new Grade A strata-title offices completed. seeking co-working space operators and introduced during the first half of 2019, serviced office operators to enhance their have been added to our basket. Both Prices and Rental offerings and provide better amenities Prince Huan Yu Centre (strata-title) and within their buildings. Traditionally Prince Financial Tower (centrally-owned) Demand kept in pace with supply favoured by start-ups and SME’s, major comprise Grade A offices and are the main during 2019. Despite the incoming and multinational companies are viewing contributors of the future majority of impending supply in the pipeline, rentals coworking / serviced office space as a viable Grade A office. They will comprise 49,010 have remained resilient with a slight alternative vis-à-vis a traditional corporate and 91,000 sq m of NLA, respectively. improvement. The lower band of Grade office, and this trend looks set to stay. A rental slightly increased from US$29 to Post 2022, the cumulative Grade A US$40 per sq m per month (exclusive of By the end of 2019, there were office supply is forecast to reach service charges and tax). Whilst Grade B approximately nine existing co-working 638,466 sq m (52%) of NLA followed and C both are now commanding rental space / serviced offices, spread over 8,190 by Grade B offices with 372,293 sq m rates of US$21 to US$23 and US$13 to sq m of net lettable area in Phnom Penh of NLA (31%) and Grade C offices with US$14 per sq m per month, respectively. city centre. Over the next three years, this 205,689 sq m of NLA (17%). The newly completed Chip Mong Bak supply is forecasted to double. Touk, The Fortune Tower and Star City, Centrally-owned offices performed relatively well with an average occupancy rate of 86% as at H2 2019. Figure 2: Cumulative Supply By Year Grade A Grade B Grade C Total 1,400,000 Lower rents remain attractive and Grade C 1,200,000 offices continue to outperform with 87.5% 1,000,000 800,000 average occupancy rate, followed by Grade 600,000 400,000 B offices at 86.4% and Grade A at 80.1%. 200,000 - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 There were no new Grade A offices 2020f 2021f Post 2022f Source: Knight Frank Cambodia completed during the second half of 2019, 3 PHNOM PENH RETAIL SECTOR PHNOM PENH Key findings RETAIL SECTOR Retail space in Phnom Penh increased by 11,584 square metres during H2 As supply is mounting up, mall operators and developers will have 2019 with the completion of Chip Mong a big task on hands to carve out a niche market positioning for their Noro Mall, The Point Community Mall mall and alternative tenant mixes ensuring marketability of their and Chip Mong Bak Touk shopping mall and reduce tenant turnover The overall retail space in Phnom Penh was recorded at 339,254 square Supply and Demand community mall contributing 7,400 sq m metres of NLA (excluding Sovanna of NLA.