After Years of Dearth, Supply May Outstrip Demand
What’s crowded, yet vacant and growing? The answer: Phnom Penh’s market for modern office space.
And while not long ago the lack of quality sleek, climate-controlled and hi-tech office space in Phnom Penh was a cause for complaint, real estate experts said that within a few years the amount of office space will double. They expressed doubts about whether much of this office space will be needed and, perhaps equally important, they wondered where the tenants that do fill those offices will park.
The sheer volume of ongoing and recently completed construction of office buildings is awesome.
This week, the newly finished seven-story Icon Professional Building on Norodom Boulevard will see its first and so far only client, the German multi-national pharmaceuticals company Bayer Group, begin to move in.
Only last year, the 28-story Canadia Tower added more than 45,000 square meters of office space to the market, most of it still vacant, while Vattanac Bank has a tower nearby under construction. The 22-story Phnom Penh Tower, and its 32,000 square meters of office space, is slated to be finished construction next year.
Additionally, the satellite CamKo City also recently announced its own plans to create a financial district in Russei Keo district. The Royal Group has also announced it will break ground this year on its own office tower, which they say will be at least 36 stories high.
While developers expect foreign investors will fill much of this space, real estate experts say its unclear how much demand there will be. The relatively high rental fees and a lack of parking may leave the owners of some modern buildings struggling to keep their space occupied.
“There is too much supply already and the supply will increase,” said Tan Hong Kiat, country director of international property consultancy firm Knight Frank.
“For the next two or three years or five years, supply in the market will be quite a lot but whether the demand will be there we can not be sure,” he added.
Mr Tan noted that even at the Phnom Penh Center, where his office is located, there are still vacancies.
“The parking spaces will be one of the considerations but the price will be one of the larger considerations,” he said. Villas, which have been used as office space for business since the 1990s, charge at least $5 per square meter in rent compared to $20 per square meter at some newer office blocks, he said.
“Which would you rent a villa at $3,500 a month and at most $6500 a month or an office space with $20 per square meter with each month you have to pay service charges?” he asked. “It doesn’t make a lot of sense just yet.”
Mr Tan predicted that as more space is created, authorities will likely act to keep the buildings in the black.
“Two or three years down the road city planners will come out with a restriction that villas cannot be used for commercial purposes,” Mr Tan said.
So Vathna, the deputy sales manager for The Icon Professional Building, said that renting all of the more than 10,000 square meters at Icon will take years, and the building management set 12 months as the goal to fill half of its space.
“Competition is a concern. We are studying other office towers to learn how to compete against them,” said Mr Vathna, adding that efficient technology, such as elevators and climate control, are all draws of the new building where rent will run as high as $25 and as low as $10 per square meter.
One benefit it has is relatively more space for parking when compared to other buildings, with 90 spaces for 10,000 square meters, he said, though he acknowledged even this amount of parking may not be enough.
“It depends on the customers and I cannot guarantee that we can serve all those cars. At the moment its not a problem,” he said. “If in two or three years we don’t have space we will find a long term solution.”
Still, he said he did not know what that solution might be.
Siev Sophal, managing director of Time Property, said he believes the recent construction of commercial buildings is an overreaction to a deficiency in the market.
“From my point of view I think they are overestimating the market. The space will be half full, but half empty,” he said, adding the lack of parking at these buildings will keep some potential clients away.
Sung Bonna, president of Bonna Realty Group, said a high amount of vacancies are possible for so many new office buildings as it is unclear just how many new businesses will fill them.
“There is not so much overseas companies coming to Cambodia. The supply seems more than the demand and it will become a competitive market,” he said. “Demand is very limited. I feel not so good for the future.”
Still, he said, businesses do need top-quality space and his office, located in a villa in Chamkar Mon district, will move to new space this year.
Canadia Tower, which continued construction during the financial crisis as other projects were put on hold, may benefit from being one of the first major towers to open, said Susi Tan, director of Mega Asset Management, which is leasing property at the tower.
“We feel we are in luck,” she said, acknowledging the high competition to come. “For a professional office building, I think we are ahead because of the crisis.”
From the 28-story tower she said that it will take years to fill the tower and so far only two commercial stores, three businesses and an NGO, have moved in, adding the building is negotiating with several potential clients. She said the benefits of the office towers are clear.
“We are more looking for international companies,” she said. “They want to move into a proper office. Many companies they have to keep up an image for the public to see, because if you are in the villa you don’t look as professional.”
Still, with 150 parking spaces, or around five spaces per floor, the building needs more parking, she said.
“Frankly speaking it’s not [enough]. That’s why we are currently looking to build more parking spaces,” she said, adding that Canadia owns several properties nearby where a parking garage could be built.
The unfinished Phnom Penh Tower located on Monivong Boulevard will rise to 22 stories with 32,000 square meters of space but only 150 parking spaces with no plans to increase them, said Song-soo Kim, director of Hyundai Amco Cambodia Co, which is developing the tower.
“At the moment we think it is enough,” he said, adding that as years go by the need will increase but will be difficult to predict. Still, asked what should be done if a lack of parking spaces becomes a problem he said, “I cannot say.”
Leopard Capital President Douglas Clayton said that his organization, which is located in villa office, has no plans to move into a modern office.
After spending most of his adult life in office buildings in Bangkok and Hong Kong, he said that the villa is a welcome change and cheaper. Leopard also has control of the air conditioning, computer system, the kitchen and did not have to build walls.
“And many of the customers who come here, they don’t really expect you to impress them with a big fancy office space. They find the villa very charming,” he said.