Competition Rises in Phnom Penh’s Retail Property Market

• 21 May 2019
• Local News
• 8948 Views

Competition is increasing in Phnom Penh’s retail property sector as developers build new retail centres. New community malls and shopping centres that are set to be complete or open include Phnom Penh Megamall (formerly Parkson Mall), The Bridge, Downtown 93, Noro Mall and Olympia Plaza Mall. These new developments will increase total retail spaces to approximately 300,000 square metres.

The retail market is regarded as one of the most complicated property sectors; much harder and more demanding than other property sectors such as the office or residential markets. Currently, e-commerce only forms a small percentage of total retail sales in Cambodia, but it is expected that this will grow rapidly all over the world, particularly with the e-commerce boom in Southeast Asia such as in Indonesia and the Philippines. In many cases, this can lead to a reduction in the number of retail stores in the market. At present, the threat to retail landlords in Phnom Penh is from the increase in supply.

With so much supply under construction due for completion in Phnom Penh by 2023, mainly in large-scale shopping centres and community malls, there are also new retail developments being planned where construction will start soon, competition is going to be fierce and retail landlords are going to have to adapt to the new environment to survive and this will mean big changes in their business models.

In a retail leasing market, landlords have set rents based on the tenant’s ability to pay – driven by business type, size of shop, which floor in the building and which location on the floor. Landlords have tried to extract as much rent as the tenant can afford to pay. From the landlord and tenant perspectives, they have to understand how many people come to the retail centre, how often and what they are spending their money on, along with many other details. For the tenant in particular, they are going to be increasingly demanding about the quantity and quality of information that they get from the landlord, so that they can best match their products and services to serve the retail centre’s customers.

Landlords can also give people a reason to visit their retail centre – for example, creating limited time opportunities through pop-up stores or events, giving people a reason to get up and go to a retail centre because they will not be able to get the product or have the experience elsewhere or at another time.

Furthermore, more supply in the retail market in Phnom Penh means rental rates will come down. While rent in the retail market has remained broadly static in the past five years, the volume of new supply in Phnom Penh and competition mean that downward adjustments on rent are likely to happen.

As competition in the retail sector rises in Phnom Penh, there are retail centres that will be successful and those that will be failures. For the landlord and tenant, they have to understand the needs of customers in order to create a retail centre that can attract customers to their premises.

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