It has been two years since the outbreak of Covid-19. Countries are reopening their borders as the world is adapting to the new normal and dealing with the crisis, on the back of improving vaccination rates around the globe.
Despite the pandemic, some countries have seen strong growth in their real estate markets, particularly in the industrial and residential segments. As workers gradually return to work, the office space in some markets is seeing improved momentum. As for the retail and hotel segments, the markets are expected to slowly recover.
Across Phnom Penh, the real estate market has trended down moderately during 2021. While the direct impact of Covid-19 increased markedly in the early part of the year compared with 2020, much of the impact from reduced foreign demand had already been baked into 2020’s results.
Condominium developers have been offering attractive discounts and improved payment plans, however, rents remain keenly susceptible to downward movement on the back of supply growth. Landed residential markets have had a quieter year, while office and retail spaces have seen reasonable take-up, but rents remain soft due to oversupply issues.
The Siem Reap market (home of Angkor Wat) has suffered considerable impact from the sustained lack of tourism, with many hotels closed and employment opportunities reduced. However, a wholesale reset in prices means that Siem Reap is now looking well placed to take advantage of opportunities to recapture visitors as the country reopens, as well as a push towards diversification of its economy.
We still take a cautious approach to forecasting in 2022. The optimism of early 2021 has been tempered by experience and greater visibility of the structural challenges facing the established commercial and residential markets in the capital. As such, we forecast that 2022 will remain subdued in terms of pricing and rental performance. However, activity levels among international investors may again pick up, with demand focused on cheaper but still strategically located assets that can be banked for later.
Activity is also likely to be greater in less traditional sectors such as industrial and logistics, healthcare and education. The hospitality industry is already starting to show signs of a new development push, especially in central Phnom Penh, with the focus centred on building for branded operators.
I believe that with the fundamental improvements we are witnessing in Cambodia’s infrastructure, the industrial and logistics markets will be the most attractive next year. Well-located and well-priced parcels on the edge of urban areas are likely to fare well for the development of affordable housing projects aimed at the rising lower-middle class. Traditional sectors for foreign investment, including the mid-range and high-end condominium market, are likely to remain pretty sluggish, at least for the first six months of the year. Leasing in the commercial markets will likely pick up following the realignment of rents that is ongoing, but the volume of supply to be delivered will mean widespread rental growth will not return for some time.
Cambodia’s strength in rolling out its Covid-19 vaccination programme has been exceptional, but the risk of further issues remains due to lack of healthcare capacity. If the vaccines can contain the coronavirus and travel resumes, we expect some more momentum in the sale of land parcels for industrial and affordable residential development, as well as for strategic land banking. Our research indicates that a situation in which funding becomes more scarce has the most potential to act as a drag on market momentum. However, due to the dynamics of the domestic banking sector, we believe this is more likely to be contained to the financing of construction, rather than mortgage lending.
Source: The Edge Markets
