Cambodia's Developers Again Aim at Stars

By PATRICK BARTA

PHNOM PENH—Cambodia's low-rise capital city is reaching for the sky—again.

Long known as one of the last major Asian cities without a skyline, Phnom Penh embarked on a high-rise building boom in the middle of the last decade, only to see it derailed by the global financial crisis of 2008 and 2009. Although a few tall buildings were completed, including a 32-story bank tower, other ambitious projects—like an 1,820-foot skyscraper that would have been the tallest in Asia at the time and among the tallest buildings in the world, behind Dubai's 2,717-foot Burj Khalifa—never got off the ground.

Vattanac Properties

The Vattanac Capital Tower would be Cambodia's latest skyscraper.

Now that Cambodia has recovered from the financial crisis—gross domestic product increased 6.0% in 2010, after rising 0.1% in 2009, according to the World Bank—its developers are dusting off ambitious plans again. They are betting that Cambodia could become one of Asia's next big investment hot spots, though it remains far from clear whether the country, one of Asia's smallest, can sustain the high-end, high-risedevelopment that has transformed other Asian cities in recent years.

Among the most prominent projects is Vattanac Capital Tower, a 38-story, $170 million office, retail and serviced-apartment development under construction downtown. Its developer, a local company called Vattanac Properties that has investments in industrial and golf properties, says the building should be finished later this year, and will include a host of amenities not commonly associated with Cambodia, including luxury boutiques, 29 elevators and five-star service for its serviced apartments. The developer is targeting tenants such as securities firms affiliated with Cambodia's stock exchange, which officially launched last year even though there weren't any companies ready to be listed. It is expected to expand this year.

"We believe that the only way is up" for Cambodia, says Vattanac Sam Ang, the executive director of Vattanac Properties, thanks to its position as a crossroads between Thailand and Vietnam. He said the project had secured the financing needed to complete construction, but declined to provide details.

The building is also notable for its design, a departure from the colonial villas and low-rise buildings with businesses on the ground and housing above that dominate most of Phnom Penh. Developed with architects at TFP Farrells, a firm with offices in London and Hong Kong that designed the China National Petroleum Corp. headquarters in Beijing and other landmarks,it looks like a giant glass-and-steel boot with a glass-encased box resting on its foot, like a soccer player balancing a ball on the crown of his shoe.

The designers say its shape is supposed to evoke a dragon's back, symbolizing good luck and wealth.

Other major new buildings in Phnom Penh include a 20-story resort and convention center, with shopping areas and cigar lounges, under construction on a 14-hectare spit of land overlooking the Mekong River in the middle of Phnom Penh. The site sits directly across from the main downtown riverside promenade, meaning the building will likely become a landmark. It features a Sokha Hotel, a popular local brand controlled by a Cambodian oil conglomerate, as well as luxury condominiums.

An official at Sokha Hotels said the oil company, Sokimex, was financing the initial stages of the development, but he declined to provide further details.

A 12-story Sofitel and spa, billed as Phnom Penh's first new five-star hotel in more than a decade, opened recently. There is also a new 22-story office building—Hyundai Phnom Penh Tower, completed last year by an affiliate of South Korea's Hyundai Motor. Other high-rise projects are under way.

The new buildings are a reminder that Cambodia is coming into the investment mainstream as it recovers from decades of political chaos and civil war, including several years in the 1970s under the Khmer Rouge regime that left more than a million Cambodians dead. Many investors hope Cambodia's young population, low wages and promising agricultural sector will lead to more years of strong growth.

But the country also only has about 15 million people, compared with 245 million in Indonesia, Southeast Asia's largest economy. It continues to suffer from insufficient infrastructure and a reputation for corruption. Cambodia ranked 164th out of 183 countries in a recent index measuring corruption perceptions published by Transparency International, a global graft-fighting group.

Phnom Penh has already seen a number of big real-estate projects get under way, only to stop because of funding or other problems. Among the biggest flameouts: A 42-story tower backed by Korean investors known as Gold Tower 42 that stopped construction when it reached just above 30 stories. It remains unfinished; Locals joke it should be capped as it stands and renamed "Brown Tower 31."

Other high-rise buildings in town have taken a while to fill up, local real-estate experts say. The 32-story Canadia Tower, which became the head office of Phnom Penh's Canadia Bank PLC in 2009, has done comparatively well and now is about 90% occupied.

Daniel Parkes, a Phnom Penh property expertwho until recently served as country manager for CB Richard Ellis (Cambodia), says he thinks there is a market for high-end offices and other developments in Phnom Penh, though it could take a while to mature. He notes that many office tenants are now working out of old low-rise buildings and villas where they have to pay for their own security guards and power generators, meaning they may eventually be eager to move to more modern facilities.

Either way, buildings like Vattanac Capital Tower are "not a one-off," in Cambodia he said. The country still has little or no "grade A" office space, and nothing like the luxury shoppingmalls and swanky apartment buildings in places like Bangkok or even Hanoi. As Cambodia continues to develop, he says, it will inevitably see more of the same.

—Sun Narin and Celine Fernandez contributed to this article.

Write to Patrick Barta at patrick.barta@wsj.com