As land prices grow, so does the city skyline

In recent years, the number of skyscrapers jostling for space on the Phnom Penh skyline has boomed.

Many remain shrouded in green netting, awaiting their unveiling prior to completion. The proliferation of skyscrapers is largely a product of economic circumstances predominantly related to the price of land, as well as the aspirations of developers and occupiers.

As cities develop, demand grows for prime land sites in central locations due to the access benefits these sites provide to the resultant occupiers. Land is a finite resource, and centrally located land available for purchase becomes increasingly scarce as developments proceed.

With development and urbanisation picking up speed, central areas increasingly come under pressure from growing volumes of traffic and the subsequent demands of occupiers to be located in prime positions close to amenities and/or facilities that they wish to access quickly.

In Phnom Penh, we can see evidence of this occurring with the rapidly increasing land prices witnessed in central districts. CBRE Cambodia recorded average prices in the Daun Penh and Chamkarmon districts as having grown by more than 110 percent between 2010 and Q1 of 2017.

Developers are typically motivated by profit and seek to construct a building that maximises the return on their investment, the major capital expenses ofwhich include the price of the development plot and the project’s construction costs.

As a result of land price increases, pressure builds on developers to increase the density of the development they construct so that they may continue to ensure an appropriate return on their investment by spreading construction costs over as much of the site area as possible. Tall buildings increase the density of a development; by stacking office, shops or residential units on top of one another greater use can be made of the same development plot.

Flying into Phnom Penh, the economics of land prices and their effect on development can be clearly seen. The tallest buildings are located in clusters centred upon locations where land prices are the most substantial, principally the financial district, along the city’s main boulevards and in the vicinity of Diamond Island, as well as a more dispersed accumulation across the enduringly popular location of BKK1. Of course, this does not preclude developers from building tall elsewhere. Indeed, many do choose to build higher than the economics of land prices would suggest is necessary for their chosen location, and usually this is to create an impression of prestige, in an attempt to derive greater investment return, or to make the most of available views.

Land prices in Phnom Penh have not yet reached the levels seen in the likes of Bangkok or the Vietnamese cities of Ho Chi Minh and Hanoi. Indeed the most expensive sites in Phnom Penh remain at between one third and a quarter of land prices seen for prime city centre plots in these neighbouring countries. In part, this is due to Phnom Penh’s continued urban expansion which provides a ready supply of more affordable land on the city fringes.

James Hodge | Surveyor | Research, Consulting & Valuation Services