For most property investors the default option would be to buy apartments/houses (residential property) but for savvy investors the opportunity to invest in shops (commercial property) would be more appealing. There are many good reasons to invest in either asset category and today we would like to look into the uniqueness of investing in shops. A comparison between both asset categories could provide a better picture to our readers of the so-called “uniqueness” that we are talking about.
Investing in Apartments:
Investing in apartments is the most basic real estate investment category worldwide. Typically it boils down to a simple formula – demand and supply. On the demand side it is about the population growth of the area and on the supply side is of course the residential inventories that are existing in the market and the upcoming stocks as well. When demand is stronger than supply, property price will increase, so as rental yield.
Investing in Shops:
A shop investment on the other hand has a totally unique market dynamic instead. In order to illustrate our point, we would like to present a real case study of a shop market in Phnom Penh, the capital city of Cambodia. Olympic Market is a 62-year old market (built in 1962) in the city centre of Phnom Penh where individual shops are sold on a strata-title leasehold 20 years basis. Investors bought these tiny shops (~2-3 sqm each) and rent them out to local businesses to run their retail and wholesale operations.
The Knightsbridge Partners team was in Phnom Penh last week (Oct 2024) to conduct on-the-ground study on such markets. A shop tenant (see below) at Orussey Market shared with the team that her tiny 2 sqm. shop on the ground floor is rented for USD1,500 per month and they are selling mainly cosmetic products on both wholesale and retail basis. The average monthly net profit is around USD6,000 (after deducting the USD1,500 per month rental). We also found out that such shops are sold on leasehold 20 years basis. Based on the current resale price of this shop, this rental rate translates to around 10% p.a. rental yield.
The shops on higher floors are typically being rented out at a much lower rate. For example a similar shop on the 3rd floor at the same market will rent for USD500 per month. In Phnom Penh such shops which are available for rent/sale will never be published on any online listing portals or property agency websites. The shop owners will typically post an advertisement notice on the shop itself and tenants/buyers are found through this traditional method. In most cases it will take just 2-3 days to rent out the units as the current occupancy rate for such markets is extremely high ~ 99.5% occupancy rate.
As we described earlier the dynamics of investing in shops are different from investing in apartments. The rental rate and selling price of the shop is determined not by demand and supply but rather by the volume of businesses or net profits that the shops can generate for the renters. If the market is highly successful (just like in the case of Olympic Market), a tiny 2 sqm shop can rent for USD1,500 per month. If business blooms further, there is no cap on the possible rent adjustment for such a shop. However if the market is not successful, no one will be willing to rent the shop even for USD10 per month.
It also came to our attention that in the same Olympic Market there is currently a jewelry shop (see image below) on the ground floor that has recently received an offer to sell it for USD1,000,000. The shop owner proudly rejected the offer even though he bought it 62 years ago for almost close to nothing. This further demonstrate that shops in such market do not follow the same investing principle of residential properties.
It is not difficult to understand why such markets (ie. Olympic Market, Orussey Market or Central Market) are a big success in Phnom Penh. There are a few key reasons:
- The local Cambodians prefer to shop in such traditional markets rather than shopping malls such as Aeon Mall etc. They find more product varieties and cheaper prices here. It is also a fact that livestock is more fresh here than supermarkets. Aeon Mall is usually frequented by local Cambodians during the weekends for the free air conditioner. Such traditional markets do not have air conditioners, hence the visiting customers are real shoppers, providing better business than those shops operating in a mall.
- They find a sense of community when they visit such markets as they have known the shop owners for decades. They do not come just to shop but to also stay in touch with their friends on a regular basis.
- Many of the customers are in fact shop owners from nearby provinces who come to buy products in bulk on a wholesale basis to resell in their own provinces.
Given such markets are 30-100 years old today, Phnom Penh is in need of newer traditional markets. GC Orussey Market is the latest large scale freehold traditional market development in Phnom Penh and this new market is due for completion in Dec 2025. Local and foreign investors are currently rushing to secure units for investment, from prices as low as USD72,000 per shop, generating 15-20% p.a. rental yield and tremendous potential capital gain. Knightsbridge Partners has been appointed by the developer GCC as the master agent for GC Orussey Market. We welcome interested property agencies to contact us for more information