Experts urge real estate players to update ‘playbooks’ to survive in the 2023 market

• 17 April 2023
• Local News
• 2215 Views

The Cambodian property market is facing numerous headwinds in 2023 due to global economic crises, the Chinese real estate downturn, and the war in Ukraine. As a result, experts are urging all players in the market to update their playbook to survive in this new context. Lawrence Lennon, Managing Director of CBRE Cambodia, emphasized during a Q1 market update seminar that the market may not recover to pre-COVID-19 levels anytime soon.

Lennon explained that the Phnom Penh real estate market is currently the most competitive and challenging it has ever been. He encouraged all players to update their playbook to that of the 2023 context, as the coming years are not going to necessarily reflect those of the preceding decade.

“At a more micro level, the Phnom Penh real estate market is currently the most competitive and challenging it has ever been. We urged all players to update their playbook to that of the 2023 context, understanding the coming years are not going to necessarily reflect those of the preceding decade,” said Lawrence Lennon.

Lennon emphasized that “the game has fundamentally changed, as supply continues to rise while demand remains lackluster.”

The seminar also summarized the status of each sub-segment of the market as follows:

Landed property

In the landed property segment, Q1 of 2023 saw the slowest launch of Borey in the past 5 years, with only four new launches and seven completions. The average quoting price of all types of houses remained stable or saw only slight changes. Rising interest rates and tighter financial options from banks caused this slowdown. Developers have to provide longer payment terms to make their products more affordable, which results in extended handover times.

The real estate market has become more challenging, and investors need both knowledge and skills to succeed in this new context. Land price speculation will slow down or no longer exist due to the lack of foreign investors and caution in the use of cash. To survive the low-sale period, developers seek joint ventures to stabilize cash flow.

Condo

The condo market is still facing challenges, with an imbalance between supply and demand and prices under pressure. Two new condo launches added 1,300 units to the pipeline, while five completions added 3,900 units to the total supply. By the end of 2023, the accumulated supply will reach 58,000 units. The average asking price for condos is around US$2,600, US$2,000, and US$1,400 per sqm for high-end, mid-range, and affordable types, respectively.

Interesting points to observe include the increase in new launches despite slowing sales, a shift from foreign to local buyers due to discounts, and difficulty in gaining financial support from banks due to increased interest rates.

Retail

The retail segment only saw one completion and one new launch in Q1 of 2023, indicating a healthy slowdown to allow the heated market to cool down. However, the supply for retail is expected to reach almost 750,000 sqm by the end of 2023, causing an oversupply issue that will continue to put pressure on occupancy and rental rates.

“The southern part of Phnom Penh is the hot spot for retail projects, with 5 newly completed projects and 8 upcoming projects, adding up to almost 30% of the net leasable area,” said CBRE Cambodia Senior Manager Daluch Chin.

Office

Finally, in the office segment, supply continues to increase, with an expected 1,150,000 sqm accumulated by the end of 2023. Unstable cash flow is causing developers to pause their projects and try to sell unfinished buildings for head leases. For old landlords, it is time to upgrade their buildings to catch up with the market and retain their existing tenants.

In short, the Cambodian property market is facing challenges in 2023 due to various global economic issues. All players in the market need to update their playbooks to survive in this new context. Despite the challenges, some opportunities exist, such as joint ventures for developers and a shift towards local buyers in the condo market.

• Analysis