Phnom Penh’s office market – a health check

Phnom Penh’s office market – a health check

In recent years, Phnom Penh has seen a growing number of new office developments and many developers excited about the flurry of activities. But is the market strong enough to absorb all these new spaces?

Asian cities have long dominated the most expensive office markets in the world with Hong Kong being the acknowledged long-time leader.  Phnom Penh however is one of the lower-ranked Asian cities and is becoming one of the cheaper office markets in the world. The average rent for prime Grade-A offices in Phnom Penh’s central business district (CBD) has not increased much year-on-year with average rent at USD28 to USD32 per square metre per month. This is nine times cheaper than the CBD in Hong Kong. 

Phnom Penh office demand has remained flat despite strong economic growth. Combined with a surplus of new supply, this should see only moderate rental price increases over the long term. With growing competition and new properties continuing to flood the market, some landlords are being flexible over terms and offering discounted rents. “Locating your business in a professionally run office building also allows the business to enjoy the modern facilities on offer. In terms of rental fee spaces inside the office, the building is arguably more expensive” according to Chhayleang Ngoun from Ratanaka Realty. 

The vacancy rate has remained stable across all sub-markets. However, some upcoming projects coming onto the market this year may witness low pre-commitments. Existing landlords are making efforts to retain their tenants, but these existing office building choices have drawbacks, such as a lack of parking. On the positive side, the local Cambodian economy continues to grow and the primary occupier of prime office properties will continue to expand. In the coming years, the service sector will show particularly strong growth in Cambodia. Mainland Chinese investors have been seeking prime office space in Phnom Penh to support their local businesses and to cater for clients’ needs. 

In Phnom Penh, prime office occupancy costs which reflect rent, plus local taxes and service charges, are growing at a moderate pace. Looking at current office market conditions in Southeast Asia, a few key cities have registered decreases, including Singapore and Jakarta with excessive supplies of office spaces due to a significant number of new office buildings being completed.

For new office buildings, it may take years to fill, mostly by luring tenants from nearby buildings. “Only office buildings providing cheap rental rates in prime locations can attract tenants” said Chan Mlop Sokha from Sokha Law Firm.

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