The latest report on the state of Phnom Penh’s property market makes bleak reading for investors and those betting on a lucrative future in the short-term.

The report, from residential and commercial property consultants Knight Frank, has adopted a cautious tone about residential property in the capital, noting that if all monitored projects complete on schedule, “the condominium sector is forecast to grow by 723.5 per cent” by 2020.

On its own, this might not be a problem in many markets: the expected 30,000 condominium units are not a large figure in terms of a population of two million people.

Cumulative supply of condominium units in Phnom Penh​ (2009 – Post 2019). Source: Knight Frank Research

However, Knight Frank noted that “a significant [price] decrease of 35.8 per cent quarter-on-quarter is observed” on new property launches, with pricing down to $1,823 per square metre in the second quarter of 2016, from $2,843 in the first quarter of the year.

And Knight Frank admits that there will be an “imminent glut in the residential sector” in Phnom Penh.

The serviced apartment sector is also facing pressure, with rental prices showing a 7.2 per cent decline, “due to increasing competition from the completion of more serviced apartment and condominium projects.”

“Rents are expected to face continuous downward pressure as more projects approach completion starting from the end of 2016 continuing through to 2020,” the report noted.

Other sectors also face a tough future. The report predicts that the supply of office space will rise by 80 per cent by 2020, with available retail space rising by 209 per cent in the same period.

Dreams of Phnom Penh as a home to high-end retail brands seem to have come to an end recently, with the capital’s small number of shopping malls playing host to increasingly smaller retail players. As Knight Frank notes: “Tenant turnovers continue, albeit at a slower pace, with most high-end brands being replaced by a more affordable selection.”

And the capital’s hotel sector is seeing looming troubles. Knight Frank says that by 2020, there will be a 40.5 per cent increase in hotel rooms. Coupled with competition from the ever-expanding boutique hotel sector, occupancy rates have generally remained around 50 per cent for five-star hotels.

This, added to a tourist growth rate of 6.1 per cent last year, means that there is likely to be a surfeit of room availability for the foreseeable future.

Cumulative supply of hotel rooms in Phnom Penh (2009 – post 2018). Source: Knight Frank Research

Ross Wheble, Knight Frank’s country manager is, perhaps understandably, more sanguine about the outlook for Phnom Penh property. “There will certainly be a period of consolidation, particularly when you compare rental prices across the different sectors here in Phnom Penh with major cities such as Kuala Lumpur and Bangkok.”

“However, the Cambodian economy has recorded impressive growth over the past decade and, with the implementation of prudent macroeconomic policies, this is forecast to continue over the coming years.

“We advise any investor that they need to take a long-term view as opposed to short-term speculation.”

Wheble notes that the entirety of the property sector has undergone massive changes in the last three years, and that many property developers are only just beginning to realize this.

“Developers can no longer just build a project and expect to achieve healthy sales rates; the demand from foreign investors has been declining during the past six months and developers need to be more innovative in terms of the products they are offering, with the market now more price sensitive.”

Wheble also believes that developers are now starting to look at other areas of Cambodia aside from Phnom Penh as suitable for investment. “Whilst there are concerns of over supply across a number of property sectors in Phnom Penh, other provinces are now attracting significant investment such as Sihanoukville and Koh Kong, and we expect to see a shift in focus away from Phnom Penh to other locations in Cambodia.”

Stephen Higgins, managing partner of investment firm Mekong Strategic Partners, said some segments of Phnom Penh’s property market were performing better than others.

“The segment of the market that’s really out of control at the moment and defies common sense is the condo market, rather than the entire Phnom Penh property market,” he said.

Quarterly sales rate of monitored and available condominium Units in phnom penh (Q4 2014 – Q2 2016). Source: Knight Frank Research

“But even within the condo space, there are some projects that will still be attractive like the Urbanland developments.

“There will still be good demand for industrial and commercial property in Phnom Penh, and that will provide attractive opportunities for investors,” he added.

Meanwhile, Higgins suggested that Knight Frank’s forecast of a supply glut could already be upon us.

“When you look at the amount of stock coming on-stream, it is hard to see it being absorbed within a five-year timeframe,” he said.

Going off historical data, Wheble told Post Property that up to 40 per cent per annum of projected unit completions rolls over into subsequent years due to delays in construction.