Commercial developers are fast expanding supply in Cambodia on hopes for greater Asian demand, but the property market's shaky fundamentals could still keep investors away.
Office stock in the capital city, Phnom Penh, is set to surge 64 percent by 2018, according to new research by Knight Frank, as both foreign and local developers bet on revived interest ahead of an economic integration plan by The Association of Southeast Asian Nations (ASEAN).
Known as the ASEAN Economic Community (AEC), the project is due around year-end and aims to launch a single market for goods, services, capital and labor across the bloc's 10 member countries, which Cambodia is a part of. The hope is that companies and investors will take advantage of easier logistics to enter the region's frontier markets.
Several commercial projects are due for completion over the next two years, including a 20-story office building called Exchange Square by Hongkong Land in 2017 and an 11-storey unit called the Emerald Tower by year-end.
Approximately half of Phnom Penh's office occupiers are international businesses from China, Japan, Malaysia, South Korea and Singapore, Knight Frank noted, making the AEC an essential element to future demand.
Indeed, confidence is high among experts like Moody's Investors Service that the ambitious economic integration plan will benefit Cambodia, which should translate into more international companies entering the real-estate market.
But high vacancy rates, rising land prices and political tensions could temper optimism.
Office vacancy rates stood at 47.2 percent in the second half of 2014 and 44 percent in the first six months of this year, Knight Frank said. The Vattanac Capital Tower, Phnom Penh's sole Grade A office building launched last year, only has an occupancy rate of 25 percent.