The real estate market in Cambodia was robust at the beginning of 2020. According to data from the Ministry of Land Management, Urban Planning and Construction, a total of 728 projects with an estimated value of US$2 billion were approved for the first two months of 2020. This number indicates a growth of 47% compared to the same period in 2019. However, everything changed when the unexpected outbreak of the COVID-19 pandemic hit markets hard worldwide, including in Cambodia.
The latest World Economic Outlook by the IMF predicted global growth in 2020 to fall to 3%, which is the worst economic downturn since the Great Depression in the 1930s and even worse than the 2008 financial crisis. Given this impact, the World Bank and Asian Development Bank (ADB) have also downgraded Cambodia’s economic growth to only approximately 2.5% for 2020. This undoubtedly will strongly impact the real estate market across the kingdom.
According to the most recent Cambodia report by renowned international real estate agency CBRE, the real estate market in Phnom Penh has slowed down considerably since March 2020. Though the impact appears to be at an early stage in Q1, the situation is predicted to deteriorate from Q2 onward. Meanwhile, any rebound is expected by the end of 2020 or early 2021 with the hope that the virus will be fully contained.
The report also states that in Q1, retail is the most affected sector with quoted rental rates falling by 9.2% for community malls, as the people began to stay home in order to mitigate the threat posed by the virus. Meanwhile, other market segments, including residential and office, seem to experience only a slight downward movement.
“This is something that could never have been predicted. We are unable to say exactly how things will play out. There are a lot of variables that are unprecedented. We will continue to work hard to keep informing our clients as to market conditions in a timely manner” said James Hodge, Director of CBRE Cambodia.
The report also provides a detailed market overview of different sectors as follows:
The condominium supply in Q1 2020 saw 15.8 % growth q-o-q, contributed by the completion of five projects or equal to 2,843 new units. This brought up the total supply to 20,851 units. 53.5% of this new supply is the high-end segment, 35.7% is the mid-range, and 10.8% is the affordable segment. Daun Penh district received the largest overall share of newly completed supply at 43.5%.
There was also a total of 8 newly launched projects, adding 4,521 units to the supply pipeline. Most new launches were located in secondary districts. Meanwhile, Sen Sok remains the leading district with a share of 48.1%.
The sale price of mid-range and high-end condo saw a drop of 1.4% and 0.5% respectively. Surprisingly, the affordable segment instead rose by 0.3% or equal to US$1,549 per square meter. Meanwhile, the rental price sees only a very slight drop of 0.4% for high-end and 0.6% for the mid-end segment, or equal to US$14.2/sqm and US$11.8/sqm, respectively.
Landed property (Borey)
In Q1 2020, there were three projects completed in Meanchey and Chbar Ampove District, which brought the total project numbers in each district to 25 and 24, respectively. Nevertheless, Sen Sok district remains the leading district of landed property supply, while Por Sen Chey district is showing increasing potential as an investment location.
Amid the concern over the COVID-19 outbreak, in Q1 2020, local developers remain confident in investing in this segment, seen by 5 newly launched projects by three main developers including Borey Peng Huoth Group, Chip Mong Land, and Borey Chea Ry.
Compared to Q3 2019, the quoting price in Q1 across five subsectors of landed property including a villa, twin-villa, shophouse, link house, and flat rose in between 2.1% to 4.8%. CBRE Cambodia also predicts that sale prices will remain robust during the next six months, driven by their local status as a ‘safe-haven’ for capital.
However, CBRE also claims the market could start seeing price corrections caused by household cashflow distress and likely to be contained to the secondary market, at least initially.
There were no new completions or launches of centrally-owned Phnom Penh offices during the first quarter of 2020. However, CBRE forecasts to see a net increase of stock of over 89,000 sqm, the majority of which will be Grade B and located outside the Central Business District.
The average occupancy rate saw a downward adjustment of less than 1% q-o-q. Overall, the demand in the Q1 remained robust, with a number of inquiries present across the market. However, the occupancy rate is estimated to keep falling over the course of 2020.
Despite the COVID-19 pandemic, rents are currently stable, but short-term discounts are expected in various places, as tenants gain more negotiation power. While the quoting rent is also expected to adjust downward from Q2 onward.
There were also no new strata-title office buildings completed in Q1 2020. However, there is one newly launched project— Central Capital Tower in Toul Kork District— which added circa 24,800 sqm to the strata-title supply pipeline. By the end of 2020, approximately 86,000 sqm is expected to join the supply, which will pressure the rent even more.
There were two new completions including TL Sky Mall and Samai Square, adding 6,903 sqm of new space to the community malls supply pipeline. This is equal to 2.1% of the total stock or 16% of community mall stock. By the end of 2020, a further 101,477 square meters of new retail supply is expected to complete.
However, there might be some delays in hand-over, primarily caused by supply chain issues in the construction sector and the reduction in expansion activity by retailers due to the escalation of the COVID-19 pandemic.
Due to a large drop in footfall in Phnom Penh’s retail centers caused by the fear of the COVID-19 pandemic, rental prices also saw a sharp fall in Q1 2020; 9.2% is recorded for community mall rents, and 10.5% for retail podium rents.
In sum, the COVID-19 pandemic is impacting various sectors in the real estate market in Cambodia, but at different levels. Despite the negatives, opportunities also exist for investors. Managing Director of CBRE Cambodia Ann Sothida said that during this period, investors have large negotiation powers, which allows them to buy real estate at lower prices.
“Buyers can acquire real estate lower than the market price during this period, as developers tend to sell their property to maintain their cashflow. However, buyers have to be very cautious in choosing the type of property as well as the developers,” said Ms. Sothida.
“For those to want invest during this period, I recommended to invest in small and middle scale investment, for which returns can take a shorter time compared to the larger counterpart,” she added.