Report sees increasing foreign investment in industrial sector

Report sees increasing foreign investment in industrial sector

The latest CBRE Cambodia Market View on the industrial market is upbeat about investment in the Kingdom, despite frequently touted political risks.

“Cambodia remains an attractive destination for industrial work and operations, with low inflation rates of 2.9 per cent and comparatively low minimum wages,” says the April report. “Cambodia’s industrial output grew by 9.5 per cent over the course 2013, the 17th highest industrial growth rate globally and above the wider Cambodian GPD of 7.3 per cent.”

“Cambodia’s becoming an attractive proposition, and more investors in the industrial sector are looking at it as a viable alternative,” says Phil Scott, CBRE Cambodia surveyor and one of the authors of the report.

The report notes that the country’s principle exports are “clothing, timber, tobacco, cassava, fish and rice”, with a total export value of $6.8 billion in 2013, up from $6.0 billion in 2012.

Meanwhile, as factory rents continued to see steady gains in China, rents in Cambodia have remained stable, commanding an average of $2.50 per square metre in prime industrial zones, and an average of $2 per square metre in less developed industrial zones.

Nevertheless, the report notes, supply of prime, developed industrial-zone land remains tight in Cambodia, holding development back.

“There remains a distinct lack in the supply of industrial units, as occupancy levels in existing industrial parks continue to remain high,” the report states, adding that tenants of special economic zones (SEZs)tend to hold onto long-lease terms once they have tailored their units to their needs.

According to the government Council for the Development of Cambodia, countrywide there are currently some 22 SEZs either in use or under development, but most are still only under consideration, and only a limited number are operational and attractive to foreign investors, says Scott.

Meanwhile, the CBRE report also notes that rising labour costs in China are putting cost pressure on manufacturers there and making Cambodia, look more attractive to Japanese, and even Chinese manufacturers.

“Increasing labour costs in China and Japan continue to drive the demandfor industrial property within Cambodia,” the report says.“In addition … increased minimum wages for factory workers in Thailand may in the future prompt cross-border relocations into established industrial zones in the north and west of Cambodia.”

According to Scott, major automotive businesses are already increasingly manufacturing parts in Cambodia for assembly in Thailand, a trend he maintains is likely to continue to gain traction, given the political impasse in Thailand, which continues to confound attempts at resolution and could possibly worsen ahead of and after new elections slated for July.

Cambodia’s SEZs, as a result, are already seeing significantly increased numbers of Japanese and Chinese tenants, according to CBRE, which notes that Sihanoukville is particularly well placed as an alternative to Thailand.

“The opportunities to relocate to Cambodia in search of better production prospects are supported bythe improving infrastructure, in particular the deep-sea port of Sihanoukville and its neighbouring economic zone. Sihanoukville also has the perceived advantage of being outside of any future political unrest in the capital,” the report says.

The report includes the caveat that Cambodia needs to stay on track in terms of supply for foreign manufacturing needs.

“The supply of industrial units will be a key influential factor in the growth of Cambodia’s economy, ensuring that foreign direct investment can continue to drive the markets.”

Meanwhile, according to Scott, the gradual shift of production to Cambodia is already having an impact on the office and residential property sectors.

“We’re already seeing on a knock-on effect from industrial occupiers relocating and expanding in Cambodia, requiring additional office and residential accommodation for their staff and operations,” he says.

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