Supply of office space to grow, diversify

People walk in front of Vattanac Capital Tower and Canadia Tower, with the newly opened Exchange Square visible in the background.
People walk in front of Vattanac Capital Tower and Canadia Tower, with the newly opened Exchange Square visible in the background. Pha Lina

Supply is up, but so are occupancy rates, with new office space to be added to the market this year, including the first strata-titled units.

After a strong year that saw new competition in prime office space with the opening of Exchange Square, Phnom Penh’s first Grade A office building since Vattanac Tower opened in 2014, the market for office space in the capital is expected to grow this year with more supply and greater variety.

According to a recent report by real estate firm CBRE Cambodia, total office space in Phnom Penh reached 335,000 square metres by the end of 2017 with the occupancy rate climbing to around 90 percent.

“Occupancy reached its highest level since early 2009,” the report said. “Space was absorbed by Chinese tenants and expanding companies already present in the city.”

Content image - Phnom Penh Post
The Oval Office Tower in BKK1, which is expected to open later this year. Hin Pisei

Grade A office space – which consists of just two buildings, Vattanac Capital Tower with 34,000 square metres and Exchange Square with 15,000 square metres – accounts for 16 percent of the capital’s total supply. Grade B office space amounts to 20 percent of supply, while the remaining 64 percent is Grade C, defined as space in older buildings.

High occupancy rates have supported rental prices. Average quoted rents on Grade A office space range from $28 to $30 per square metre, according to the report. Grade B buildings average $18 to $25 per square metre, while rents in Grade C buildings run from $10 to $15 per square metre.

This year will see the addition of several new centrally-owned office buildings, with Keystone adding 15,500 square metres of supply and Oval Office Tower adding 6,000 square metres. In addition, the capital will get its first strata-titled office buildings, with 60,000 square metres coming online by the end of the year.

Strata-titled office space, where investors or end users own rather than rent units, has proven popular in many Asian markets but remains untested in Cambodia.

“Strata-titled office space is a new concept in Cambodia [and] it is challenging to predict its popularity as much will depend on the price, management quality and location,” said Ann Sothida, director of CBRE Cambodia. “However, this concept has been successful in Thailand, Malaysia, Singapore and Hong Kong.”

TK Royal One will be one of the first buildings to offer strata-titled office space. The mixed-use development on Russian Boulevard opposite the Royal University of Phnom Penh (RUPP) will deliver 146 condominium units and 7,900 square metres of office space when it opens in May.

Chenyi Chiu, general manager of TK Royal One, said he expects the strata office concept to take hold in Cambodia, noting that all of his building’s units – which range from 60 to 180 square metres in floor size – have already been sold.

“As it is a new [concept], the structure and design are focused on quality,” he said.

Content image - Phnom Penh Post

The Grade A occupancy rate climbed last year despite the injection of new supply into the market and the close proximity of Vattanac Capital Tower and rival Exchange Square.

Despite earlier sluggish rentals that kept many of Vattanac Tower’s floors empty, the past year has seen a surge in demand from local and international firms seeking prime office space. Occupancy is now at 70 percent, with 26,000 square metres leased, according to Lim Phousithavrith, head of Vattanac Tower’s leasing department.

Vattanac Tower last week held the official opening of the Rosewood Phnom Penh Hotel, a 175-room luxury hotel occupying the top 14 floors of the gleaming glass tower. The opening of the hotel is expected to draw more attention and traffic to the building, which should help bring in more tenants.

“The presence of the hotel... makes this building even more attractive,” said Sothida.