Office space market primed to explode on rising demand

Written by George McLeod

A shortage of high-end office rentals in Phnom Penh will drive a boom in new office construction over the next two or three years, analysts say

RISING foreign investment is leading to an office shortage in Phnom Penh, with some analysts expecting pent-up demand to generate a building boom over the next two years.

"There is nothing of an international standard in Phnom Penh right now," said Naim Khan-Turk, director of research at CB Richard Ellis (CBRE) in Ho Chi Minh City. "Many businesses are having to rent out villas."

Analysts say the office market has not had time to catch up to the pace of economic growth, with only low- or medium-quality offices for rent in the capital. Phnom Penh has only about eight major office buildings available, with most of the space in converted colonial villas, hotels, or refurbished shophouses.

Office space is graded by its location, the quality of the construction and the amenities offered in the building. None of the existing or planned space exceeds B grade, said international property experts.

"We class Grade A as having at least 1,000 square metres of floor space, quality mechanical engineering such as high-speed lifts, efficient buildings, and car parks - but that's a loose definition.... We don't see anything in Phnom Penh meeting those standards," said Khan-Turk. "It is hard to say exactly how much pent-up demand is there, but in the next five years, if 150,000 square metres of office space hit the market, I don't think it would be saturated."

'Strong growth for 2-3 years'
Knight Frank chairman Eric Ooi said that the shortage of prime office space could make Phnom Penh a potential boom market over the next two-years.

"Phnom Penh is like Ho Chi Minh City eight or 10 years ago....I expect strong growth for the next two to three years."
Rents were rising accordingly, he noted. "In March, offices were renting for about US$10 per metre. Three months before it was $7 and now space is going for $14."

That figure is still much lower than in Ho Chi Minh City, which has more than 77,000 square metres of Grade A office space available, according to CBRE estimates. Grade B offices in Ho Chi Minh City range from $17-53 per square metre and average $36, said CBRE, even though the top-end market there has taken a hit recently due to inflation and excessive supply.
Few expect the troubles to spread to Cambodia.

A local real estate company reported surging sales this year on mainly foreign demand.

"There are a lot of companies coming to Cambodia [and] most of the growth is from Korean companies," said Heang Rental from VTrust real estate. "The quality is not up to international standards, but it is acceptable for offices."