SPECIAL REPORT
a small [profit] margin because of the high commission fees,” he told The Post via a social messaging app.
Nevertheless, the company continues to invest into the business to sustain an income “from any corner”. “Most importantly, we need to survive this period,” he said.
Tapas Kuila, a former general partner of venture capital firm Ooctanewhich invested in food delivery starup Muuve, concurred that online food orders have swelled as “more and more people tend to do so instead of dining out”.
In Phnom Penh alone, the gross merchandise value for the food delivery market stands around $16 million to $18 million annually.
But, a majority of the growth has been thanks to Covid-19, which makes it unsustainable, he said, noting that this could be further validated by observing the trends.
“If you look at the volumes in deliveries – food, groceries and couriers – they spiked really high in the initial coronavirus scare back in March and April but it went down to previous levels soon after,” he explained.
What about e-commerce? Does it pose a challenge to the retail market? Griffiths again dismissed the idea that it would threaten physical stores as the entrepreneurial spirit and people’s desire to enjoy retail shopping would see retailers rebound quickly.
He said well-operated e-commerce platforms supplement physical store sales and are valuable assets in the present time to maintain store cashflow.
Asked if the current online shopping trend would persist as things got better, Tapas opined that when it comes to e-commerce, there is a different angle of logistics in the picture, and today, customer experience is “broken and bad” when it comes to that.
“So I think if a company is able to provide that kind of end-to-end good customer service and stickiness from a supply chain perspective, e-commerce volumes could stay the same or subside by a lesser proportion than food deliveries when the economy opens up and hopefully continue on its growth trajectory,” he said.
However, as more retail space, categorised as shopping mall, community mall, retail podium and retail arcade, comes into the market, the pressure of filling them will likely intensify.
No further rental compression
Figures shared by The Mall’s retail insight showed that Phnom Penh’s vacant retail space rose 85 per cent year-on-year to 16,247 square metres (sqm) as at end-December, 2020, whereas total retail space supply stood at 370,781 sqm last year.
Out of the vacant space, F&B accounted for 58 per cent, followed by fashion (21 per cent) and health and beauty (nine per cent).
In addition, community malls saw the highest unoccupied retail space at 9,565 sqm, ahead of shopping malls (3,091 sqm) and retail podiums (2,351 sqm).
The periodical total net lettable area (NLA) figures often vary a little among real estate service providers, ranging between 50,000 sqm and 100,000 sqm, when compared.
But the anxiety of oversupply in a soft market is staple, judging from the approximate total value of vacant retail space which comes in at $85 million to $105 million as of December 31, 2020.
Headline rental estimate for vacant retail space, a rent that is paid following a rent-free or reduced rent period, stands at $780,000 per month, notwithstanding the impact of additional incentives offered by landlords.
Industry players contend that the figure has improved a little compared to 2015 to 2017 but lament that it is still marginally higher than 2018 and 2019.
“There has not been a significant amount of variance over that period,” one source said.
What this shows is that rental rates on average across Phnom Penh has suppressed 20 to 30 per cent from pre-Covid-19 levels.
At some retail properties, rents have remained stable with zero to 10 per cent drop while at others, as much as 50 per cent lower rates were experienced, Griffiths shared.
That said, he does not foresee rental rates coming down further, anticipating it to stay subdued for most parts of 2021 with some potential gains similar to 2019 in the final quarter of this year.
Overall, some 500,000 sqm NLA of retail supply will stream into the market between now and 2023, UKheadquartered real estate consultant and agent Knight Frank’s statistics showed. By then, total NLA would have ballooned to 909,008 sqm.
Similarly, CBRE Cambodia, an affiliate of US-based commercial real estate services and investment firm CBRE Group Inc, which recorded just over 400,000 sqm of retail supply in Phnom Penh last year, sees a strong uptick in vacant spaces, particularly in retail podium and shopping malls in 2021.
Pre-pandemic development plans
While the numbers are heady in the present economic landscape, it should be noted that these developments were planned at a time when GDP growth averaged seven per cent year-on-year.
Following a record contraction of 3.1 per cent in 2020, the government projects growth to be around 3.5 per cent, slightly modest from National Bank of Cambodia (NBC)’s four per cent forecast this year.
The pandemic aside, the rise in retail space would be seen as a sign of economic growth, especially where real estate and construction largely underpinned Cambodia’s gross domestic product in recent years.
Foreign direct investment in this sector in 2019 represented 18.6 per cent of the total $3.7 billion, up 13.7 per cent from 2018, with a majority of that from mainland China and greater China including Taiwan and Hong Kong.
In the meantime, local developers stepped up to be on par with foreign players to meet a robust housing, retail and office demand, signalling Cambodia’s position at the cusp of a massive economic growth.
Having said that, it also raised NBC’s anxiety of a property bubble due to the rapid and staggering expansion of the sector as real estate financing and mortgages, offered by developers, grew unchecked.
In the midst, incessant constructions retail arcades in the last five to six years continued with some running into financial trouble even before the pandemic.
They include the market redevelopment of Century Plaza by Chinese investors on Russian Federation Boulevard and the long-overdue Phnom Penh Mega Mall on Street 271, which has allegedly restructured its loan. Together, these projects command a gross development value of $120 million.
A weary outlook
This circles back to the challenge that has commonly plagued the sector over the past years, which as Ross Wheble, country head for Knight Frank (Cambodia) Pte Ltd, said is the disequilibrium between supply and demand.
Drawing a parallel, he said due to the surge of incoming mall completions during the second half of 2020, average occupancy rate had compressed further to 79 per cent, a six percentage point year-on-year drop since 2019.
Contending that footfall traffic has fallen intermittently due to viral outbreaks over the past year, Wheble noted that there were no mass foreclosures of major retailers evident in the second half of 2020.
However, foreclosures among stand-alone traditional shophouses converted for use as retail started to rise, owing to a drop in incoming tourists which formed the bulk of their clientele.
Still, overall consumer appetite would undoubtedly keep the retail real estate sector buoyed, because of increasing disposable income, said James Hodge, managing director of CBRE Cambodia.
He also reminded that retail space per capita in Phnom Penh was among the lowest among major cities, if not the lowest, in Southeast Asia at less than 0.2 sqm.
In comparison, Yangon in Myanmar recorded nearly 0.7 sqm of completed retail space per capita whereas Vientienne in Laos pushed slightly above 0.3 sqm.
Coupled with its young population and growing spending money, strong interest has piqued among popular brands, with Asia Pacific labels leading the way.
It represented new entrants at 61.3 per cent in the fourth quarter of 2020, towering over those from Europe, the Middle East and Africa (25.8 per cent) and the Americas (12.9 per cent), Hodge said.
Nearly two-thirds of that figure constituted F&B businesses, such as milk tea, Korean and Japanese restaurants, fast food and dessert shops, while the rest were fashion and accessory outlets - which grew 100 per cent from 2019.
“As such, we expect that the sector would continue to diversify its offerings in order to widen the pool of potential customers, and drive footfall and retail spending,” he added.
At the same time, a fraction of developers have started to resolve the problem of vacant units themselves either by repurposing them or in the case of well-capitalised owners – bringing in and operating brands themselves.
“[It] ensures good occupancy rates in the malls. As more malls are established across the capital, the market becomes attractive to major retail powerhouses such as Uniqlo and H&M. We should see new entrants into the market,” said Wheble of Knight Frank.
As for older properties such as the Bayon Market building near Russian Federation Boulevard and Pencil Mart on Samdech Pan Street, which is one of the oldest malls in the city, they have been repurposed as lowrent office buildings.
Similarly, $15 million Young’s Commercial Centre and Resort Co Ltd in Chroy Changvar is now New City Walk after it was sold, having not achieved its original vision as a one-stop mall within the Happiness City mixed-development project. It was redesigned into retail and office units, and relaunched.
Meanwhile, some projects are progressing slowly or are delayed, though it is “hard to tell”, The Mall’s Griffiths confessed.
“We know of six small to mediumsize retail projects, each with less than $8 million GDV that have been put on hold. However, they are at the early design and development stage, so it is easy to hold at that stage,” he said.
But what is to come of all this, is unclear. Real estate agents show relative optimism, acknowledging that “everyone is struggling” but at the core of it, the amount of vacancy remains a huge reckoning for the real estate sector.
The short-term outlook is likely to be weary as supply piles on, doubling present figures, assuming all projects complete as scheduled, Knight Frank wrote, but could it last longer? Only time will tell.