Phnom Penh Office Rental Rates Fastest Growing in Region

• 31 December 2015
• Local News
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PROPERTY FOCUS I LOCAL NEWS

Office rental rates in Phnom Penh were the fastest growing in the region in Q1 2014 according to the Knight Frank Asia-Pacific Prime Office Rental Index.

Phnom Penh was included in the Index for the first time in Q1 2014 reflecting the growth and stabilization of the nation’s economy and property market. While the overall index saw a rise of 1.3%, Phnom Penh saw the largest increase in prime office rental rates in the Asia-Pacific region with a substantialquarter-on-quarter rise of 18.6%.

Office vacancy rates dropping to 5.5% were considered a key factor in this rate rise, indicating an increasing level of demand. However, the scheduled opening of Vattanac Tower, the capital’s first LEED-certified Grade A office building, later in the year will add significant supply to Phnom Penh’s small office marketand growth in rental rates is expected to moderate during the remainder of 2014.

Ross Wheble, Country Manager at Knight Frank Cambodia told CPM that,“The inclusion of Phnom Penh on the Index for the first time gives us an indication that there is increasing interest from international companies looking to enter into Cambodia, and that the Kingdom is now on people’s radar as an attractive emerging market.”

On the issue of rising prices, Mr Wheble explained that, “Regarding the significant increase in market rents during Q1 2014, this is purely a factor of supply and demand; with the opening of office space in Vattanac Tower in Q2 2014 and G.T. Tower scheduled for completion at the beginning of 2015, there will be sufficient supply to meet demand and market rents will stabilize. Future increases will be driven by the improvement in quality of office space in Phnom Penh.”

Knight Frank also recently published the first Prime Asia Development Land Index. This first Index reported that the region,and Phnom Penh in particular, is enjoying strong growth. Of the 13 markets tracked, Southeast Asian locations make up four of the top five cities when ranked by the growth in land prices – for both residential and office development land.The report showed that growth was fastest in developing Asian nations and cities like Jakarta and Phnom Penh, while it remained relatively static in highly-developed, highly priced, mature markets like Singapore and Tokyo.

The Index also pointed to the Asia-wide trend of developers buying up land and sitting on it until a more profitable time to develop. Total returns (or a development’s IRR) for many developers in less mature markets are not highly leveraged using capital markets, as happens in the west – but more reliant on increasing land values and traditional funding sources. This is certainly a trend which is visible in the Cambodian market.

Knight Frank’s Prime Residential Development Land Index registered an increase of 20.7% over 2013 in Cambodia’s capital city, whilst the Prime Office Development Land Index registered an increase of 19.9% over the same period for Phnom Penh.

The Index points to increased local and international investment after the turbulence global financial crisis of 2008 as a key factor in this growth. “Rapid growth in land prices has been underpinned by renewed interest from both international and local developers subsequent to the Global Financial Crisis,” said Ross Wheble.

According to the Index, another factor which has contributed to a favorable investment climate in Cambodia is changes to the legal framework which have allowed building owners to obtain strata titles, thus enabling purchasers to obtain a hard title and foreign purchasers to buy freehold property under certain conditions.