2018 will be a landmark year for strata office space, with Cambodia’s first strata-titled office units set to open in May and about 112,000 square metres to be delivered by the end of next year.
Cambodia’s first strata title office space will come online this year, introducing a new asset class to the commercial office market that could account for over a quarter of total office stock within the next two years.
TK Royal One, a Taiwanese mixed-use development in the capital’s Tuol Kork district, will be the first building in the country to deliver strata office space when it opens next month. Four floors in the 21-storey building have been allocated as strata office space, with 36 units, while the rest of the building designated as residential, with 146 condo units.
Hak Maren, sales manager for TK Royal One, said the initial response to the new trend in office space was overwhelming, and all 36 strata office units were sold off-plan within four months. The units went on sale in early 2015 and by the second quarter all were booked, with “the first tenant set to move into TK Royal One in May this year.”
At least five other developments with strata office space are expected to open in Phnom Penh within the next two years, including East Commercial Centre in Tonle Bassac commune, Diamond Twin Tower on Koh Pich (Diamond Island), Star City near the airport, Fortune Tower near Olympic Stadium, and The Gateway on Russian Boulevard.
The projects will deliver a combined 112,000 square metres of strata office space by the end of 2019, which amounts to over a quarter of the capital’s total projected office supply.
In addition, developer OxleyWorldbridge will offer the country’s first SoHo (“small office, home office”) units when it opens The Bridge later this year. The 963 SoHo units are strata-titled Grade A office apartments under 60 square metres flexibly designed for both living and working – a model increasingly popular in big cities such as Singapore and Beijing.
Strata title office space is a similar concept to a condominium, where investors in a multistorey building complex own the individual units rather than lease them and share the costs on maintaining the building’s common areas. As with condominiums, these properties are subject to a 2010 Cambodian law that permits foreigners to own up to 70 percent of a building above the ground floor.
While common in developed markets such as Singapore, Hong Kong and Vancouver, the strata office concept has never been tested in Cambodia. But real estate experts say it offers several distinct advantages for unit owners and developers over traditional leasing arrangements.
“The biggest benefit for buyers is the ability to enter into the commercial real estate market at a very low price point,” explains Grant Fitzgerald, country manager of real estate firm IPS Cambodia. “Traditionally, if you wanted to own commercial real estate you would have to buy an entire building which is significantly more expensive than buying a strata office, the size of which you can tailor to suit your budget.”
Full ownership can help tenants avoid future rent increases in an increasingly expensive market, he said.
However, owners might not necessarily occupy the units, as similar to a condominium the strata-titled units are also regarded as an income-producing asset. Owners can choose to rent out their units for $25 to $30 per square metre at current market rates.
“Strata-titled offices allow investors to diversify their property portfolio without having to spend big money,” Fitzgerald noted.
For real estate developers, the clear advantage in offering strata office space is the quicker return on investment over leased commercial space.
“As strata title units are sold off the plan, the returns for developers can potentially be gained much faster than a leased property,” he explained.
Early results suggest the strata office market could be a boon for developers in Cambodia. Both TK Royal One and The Bridge claim to have sold their entire supply of strata office units within months of opening off-plan sales. Diamond Twin Tower has sold at least 70 percent of its 160 strata office units, according to Kelven Chen, director of Asia Pacifc International Property, a sales agent for the project.
“Strata office is easier to sell because currently the supply of strata office space is limited,” he said, adding that most of the units were snapped up by Taiwanese and Chinese investors.
Chen noted that the strata-titled office units in the twin-tower project have been outselling the condo units, whose sales have been “sluggish” due to a glut of supply.
