CBRE: Office rental rates on downward trend from Q2

• 1 May 2020
• Local News
• 3356 Views

Occupancy rates of office rental business began to decline from April after remaining robust in Q1. Meanwhile, new rental rates will also begin to decline towards the end of the year, after initial upward movements only a month before the COVID-19 eruption. The dropping trend in rent rates is likely to reverse the increasing supply of new office space which saw a stagnated trend earlier this year but will increase significantly by the end of 2020.

This increasing supply will lead to increasing vacancy rates, resulting in significant pressure on the rental market prices and sale of commercial offices. This effect will eventually force building owners to reduce rental fees, according to a recent report by CBRE predicting trends in the real estate market.

In terms of current occupancy rates, CBRE reported that the outbreak of COVID-19 caused a slight decline in the number of occupants and remain stagnated in the first quarter, which is less than 1% compared to the same quarter last year.

However, the rate is predicted to increasingly trend downwards at a rapid rate for the rest of 2020 due to delayed project completions and due to a decline in investor confidence.

Despite the COVID-19 pandemic, rents are currently stable, but short-term discounts are expected in various places as tenants gain more negotiation power. Meanwhile quoting rents are also expected to adjust downward from Q2 onward.

In terms of new rental rates, an initial upward movement was observed in January, a small increase one month before the outbreak of COVID-19. The rate has been steady for about three months due to the previous competitions of tenants and some office owners have begun offering discounts.

However, from this month onward, the number of new tenants renting or buying new offices may continue to decline, which will inevitably put more pressure on property owners to make further discounts.

There were no new completions or launches of either Phnom Penh centrally-owned offices or strata-title offices during the first quarter of 2020.

However, there was one newly launched project – Central Capital Tower in Toul Kork district which added circa 24,800 square meters to the strata-title supply pipeline. By the end of 2020, approximately 86,000 square meters is expected to join the supply, which will place even more pressure on rental rates.

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