Edition 8 of the Retail Insights report from The Mall Company (TMC) offers a round-up of Phnom Penh’s Retail Real Estate Supply as of the end-year 2022, which was a record-breaking year for Phnom Penh’s Retail Real Estate market, and a glimpse of what is in the pipeline.
TMC is currently tracking 56 retail spaces/properties across Phnom Penh but their data shows occupancy dropped to 62% by the end of last year so there are still headwinds. We discuss the opportunities and challenges with TMC Managing Director, Simon Griffiths.
Why Was 2022 A Bumper Year For Cambodian Retail Property?
At the end of 2022, the total existing retail supply in Phnom Penh reached 716,253 sqm net leasable area (NLA) and the highest retail supply growth ever recorded in Cambodia - a 53% increase over the 12 months.
As the Retail Insights report states: “On 31st December 2021 Phnom Penh’s total modern retail supply was 467,829 sqm with total modern retail supply reaching 716 253 sqm, therefore witnessing the highest retail supply growth ever recorded.”
Simon Griffiths said there were three reasons for last year’s records: “Firstly, AEON Meanchey and Chip Mong 271 collectively supplied the market with 140,000 sqm NLA which was 57% of the total retail NLA supply that entered the market during 2022.
Secondly, the popularity of the ‘community mall’ class of retail asset for land owners looking to develop a new project and for borey developers looking to add value to their residential/borey has meant new community malls came online across Phnom Penh. These include Fun Mall and Euro Park.
At a deeper level, development lifecycles for ‘shopping malls’ are 4-5 years. So in the case of AEON Meanchey and Chip Mong 271, development decisions were made as far back as 2017 when supply vs demand dynamics were more equally balanced. In 2022 we witnessed that development pipeline comes online resulting in a bumper year for new retail supply.”
Other key takeaways for 2022 from the TMC report indicated that:
- Shopping Malls contributed a supply of 359,223 sq.m (NLA) of modern retail space in Phnom Penh.
- Community Malls have been the retail class of choice for many developers and contribute 197,455 sqm (NLA) of modern retail space in Phnom Penh.
- Shopping Centres contribute 73,460 sqm of NLA.
- Retail Podiums contribute 76,915 sqm of NLA.
- Retail Arcades contribute 9,200 sqm of NLA.
What is the Future of Retailtainment in Cambodia?
We wrote previously about the trends in retailtainment in the Kingdom which has seen retailers and malls in particular try and diversify their attractions to appeal to a changing consumer market.
What more will be offered in this area in the future to attract more customers, and what types of retailtainment would work for the Cambodian market?
Griffiths said of the topic: “There is a general misunderstanding about ‘retailtainment’ which is that by adding ‘entertainment’ retail classes to a project this is ‘retailtainment’. Retailtainment is a much more holistic concept than that and requires understanding that consumers are looking for an ‘experience’ when engaging with retail and not just looking to spend time at standard brick-and-mortar stores flanking a central corridor. Consumers wish to be engaged, they wish to be entertained, they wish for their senses to be excited about what comes around the next corner.”
He added: “When talking about retailtainment in this context, the common area plays a major role. There are international malls that have incorporated slides between floors, zip-lines, climbing walls, shows, exhibitions, street entertainers, mini-theme parks, inflatables, photo booths, selfie spots, decorations, games, raffles and the list continues. All of these can make a retail project retailtainment and it is not just adding ‘entertainment’ trade mix, it is the adoption of a ‘retailtainment’ culture ingrained within the project's design and executed by operational and marketing teams for the mall. It cannot be faked and should not become a gimmick. It needs to be quality, well thought-out, planned and executed.”
The TMC Managing Director feels that retail developers in Cambodia have not yet fully appreciated retailtainment as a concept, although adds that AEON “have begun pioneering retailtainment and AEON Meanchey is a demonstration of their adherence and belief in the ‘experience’ and ‘retailtainment’ and should they ever develop another shopping mall, it would be reasonable to expect retailtainment innovation within the mall design taken to the next level.”
What Malls Are Being Developed In The Kingdom
With occupancy rates dropping, there are concerns of saturation as a number of large malls are still being developed, especially in the capital of Phnom Penh. The TMC Retail Insights report suggests that 9 modern retail centres are expected by 2024, and 72 Retail Centres by 2026. The total modern retail supply in Phnom Penh will reach 1,022,824 sqm by 2026.
“At its core, demand is underpinned by consumers. How many of them are there within a catchment area, how much discretionary spend do they have, what are the age and social status demographics? While the Cambodian population is growing, as is discretionary spending, and the emerging middle-class, it is not growing fast enough to keep up with the growth of new retail supply, meaning there are not enough customers to be able to have profitable stores in all the malls, so effectively demand is not keeping up with supply” added Griffiths.
He says that subprime spaces within malls which are typically on higher floors, in the corners of projects, or non-street-fronting units within community malls are suffering from the weaker demand.
Opportunities In The Cambodian Retail Sector
In terms of the demand for luxury and high-end brands, Griffiths feels that the existing quantity of these in the Cambodian retail supply is only 2.7% of the total NLA supply but this is set to grow with the launch of The Peak Mall.
“There is an opportunity here as the vast majority of the existing retail supply has a similar positioning in the mid-market, so the luxury sector is somewhat an untapped market. In terms of the luxury sectors’ target consumers, there is a low volume, but high discretionary spending - they are somewhat recessionary proof. Luxury retailers and consumers have high expectations and demands so developing luxury retail supply is complex and must be coupled with a high degree of operational expertise and luxury market knowledge and understanding.”
NLA growth is also anticipated in the Retail Arcade and Retail Podium retail space until 2026 - the key is understanding the target consumer, competition and brand market positioning. For international brands the comparatively low rents and the fact businesses can be 100% foreign-owned are appealing.
- High percentage growth in retail arcades (288%) by 2026 due to the fact the existing amount of retail arcade space is circa 10,000 sqm NLA. Naga 3 connecting to Naga 2 through an underground retail arcade will increase the new supply.
- Retail Podiums represent a significant amount of new supply at circa 225,000 sqm of retail NLA entering the market by 2026. Latent retail podium supply has been built but has not launched with circa 150,000 sqm NLA currently complete, vacant and not released to the market. Supply growth will grow significantly (220%) and the total supply of retail podium space will reach 228,000 sqm NLA.
- Growth of borey projects means developers are seeking to provide additional benefits to their buyers through community malls. Community malls have become a good choice for landowners eager to develop their own projects too.
- Modern retail is still relatively nascent in Cambodia - and many opportunities to enter the market and for brands to set their market positioning EG: European & international brands or products with a mid-to-low market positioning in Europe.
What About Outside of Phnom Penh?
Griffiths says that Siem Reap’s dependency on tourism has meant lower demand from retailers and the rebound means “It will take time to restore consumer demand and therefore retailer demand for new retail space. It is certainly one to watch closely with the new airport and as other major developments in the pipeline begin to come online in the coming years.”
For the coastal city of Sihanoukville, he agrees that there is a wait-and-see approach. “There is a lot of interest but also a lot of uncertainty as to what the future of Sihanoukville will look like. Investing in a retail project right now would not be prudent, but watch this space, the potential is bubbling below the surface. We expect modern retail projects to be part of the mix in revitalising Sihanoukville.
You can download and read the full Retail Insights 8 from The Mall Company report here. TMC hopes to release more on Cambodian retail occupancy data in Retail Insights in Q2, 2023.
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