Nearly six months after Canadia Bank opened its 30-story skyscraper on the corner of Phnom Penh’s Monivong Boulevard and Street 110, falling prices in the office market has forced the bank to offer a 40 percent reduction on rental prices for the first year.
After selling 30 percent of its total office space, the bank is now coming under pressure to be more in line with the going market rate, property experts say.
“We have a discount of 40 percent on rental costs of $25 per square meter [per month] from now on,” said Susi, a director for Mega Asset Management, whose firm manages Canadia Tower.
Ms Susi, who like many Indonesians only goes by one name, said that prices at Canadia Tower had been forced to come down due to competition in the office market where rental costs have been steadily decreasing since mid-way through last year.
Sung Bonna, CEO and president of Bonna Realty Group, said that prices in the office market had dropped by about 20 percent across the board since the middle of 2009.
The discount at Canadia will last for the first year of rent only and will be reduced to between 10 and 20 percent in the second and third year before going back to $25, Ms Susi added.
Canadia Bank has office space available between floor 16 and 27 and so far has filled floors 16 to 19 as well as parts of floor 22 with companies in the telecommunication, construction and consultancy sectors. The company is also in negotiations with several other firms to fill another 20 percent of the tower’s office space.
“I only started to locate my clients from January. So I am very happy with the results so far,” Ms Susi said.
The $30 million Canadia Tower, which opened on Nov 5 and has more than 45,000 square meters of office space, was one of several skyscrapers to break ground during the property boom leading up to the global financial crisis. It is also the first and only such development to finish so far.
Dan Parkes, country manager for global realtor CB Richard Ellis, said that for a company who has never developed office space before, 30 percent occupancy after roughly six months was actually a fair achievement, especially considering that Canadia Bank has not requested any assistance from an outside advertising firm to try and lease the office space.
Clients “who have come to them are people who have knocked on their door,” he said, “and considering we’re coming out of the largest global downturn in about 80 years…they are actually doing remarkably well.”
But the level of pricing “was always going to be an issue,” he said, adding that Canadia’s initial monthly price of $30 per square meter was “too high” for the current market conditions, noting that grade A office space in Kuala Lumpur is now going for monthly payments of about $10 per square meter on average.
With new incentives on rent, Canadia Tower should become much more competitive by aligning itself alongside other locations such as the Phnom Penh Center on Sotheros Boulevard, where so-called B-grade office space is currently being sold for monthly payments of between $12 and $14 per square meter, Mr Parkes said.
Tan Hong Kiat, country manager for the real estate firm Knight Frank, said the incentives coming from Canadia Bank would help kick start the market for grade-A office space.
“There is pressure on marketing tools. So this is very positive that they want to come with this marketing tool to encourage people,” he said.
“I suppose Phnom Penh is actually a very new market and is [calculating rent] on a trial and error basis,” he said. “It takes time to decide on a so-called market rent.”
Kim Song-soo, director for Hyundai Amco, who is building the 22-storey Phnom Penh Tower on Monivong Boulevard, said the initial price for office space would be $20 per square meter when the tower comes on line in June 2011.
The South Korean Gold Tower 42, also due for completion toward the end of next year, will add an additional seven floors of office space on the market. And Vattanac Bank’s 38-story project on Monivong Boulevard is also under construction, though officials at Vattanac Bank have revealed few details publicly.
Even though the Phnom Penh Tower will add another 19,000 square meters of office space to the market Mr Kim said there is currently an over supply in the market.
Demand will probably be slow in the opening few years of business, he said. “We expect the demand within four or five years.”