Office Market Putting More Pressure on Landlords

• 1 November 2021
• Local News
• 1028 Views

By Eric Wong Chon Lap

More than a year into the pandemic, Phnom Penh’s office market is changing right before our eyes. Despite the slower market activity with fewer foreign investments entering the country, new office building supply continues to increase every quarter, with new projects consistently being announced.

The Phnom Penh office market shows a direct impact from COVID-19. The overall occupancy rate does not exhibit any signs of slowing down. It only resulted in a slight dropping from the pre-COVID-19 occupancy rate from 2019. However, the market could have oversupply for the first time. Meanwhile, in times of market turmoil, occupiers are finding new ways to adapt to the uncertain times ahead.

In Phnom Penh, most companies were in normal office settings during COVID-19, despite the wider global adoption of working remotely where employees share time between traditional office settings and working outside traditional offices. Employees are required to work in the office at most companies.

In terms of market demand and supply, as the market becomes an occupier-favored market, it is observed that existing tenants will renegotiate rents on their lease terms and structures to reflect the market disruptions, including requiring more flexibility on the leasing contracts. There is also an increasing number of existing office occupiers planning to increase, or shift their use of flexible office space, including co-working or serviced offices, as it will provide these tenants with more flexibility, and a shorter lease term. In addition, these occupiers can also take the advantage of the vulnerable market situation, and move into better buildings with more attractive deals. At the same time, some occupiers are shifting towards being more cautious with their decision-making on office leasing, as well as focusing on more flexible contracts, so as to have more security in this volatile market environment.

Furthermore, the office sector will continue to experience additional supply over the next three years, putting even more pressure on landlords. Even when the current COVID-19 is over, the market could further see a new challenge coming from the constant increase in office supply – mainly due to the shifts in workstyle from occupiers. Despite the foreseeable challenges, the implementation of collaboration space will cause the demand for office space to drop. In contrast, employers focusing on traditional office settings, local companies, in particular, signifies that demand for office space remains.

Nonetheless, the office market is observing major changes. It is believed the market will go into a slow recovery post-pandemic and will continue to rebound alongside the recovery of the Cambodian and global economies.

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Eric Wong has extensive experience in the field of property consulting and development sectors, primarily within the emerging markets of Southeast Asia. From the property consulting perspective, he has lead market research assignments inclusive of providing descriptive, exploratory market research and analysis reports within the office, residential, hotel, and retail segments in both quantitative and qualitative methods to determine suitable development types, scale, and product mix, and address property-related matters from project positioning to absorption rates, phasing and pricing and marketing strategies, etc.

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