THE PHILIPPINE OFFICE property market may continue to benefit from the expansion of business process outsourcing firms, and from the strong, sustained growth of the local economy, according to property consultancy firm Colliers Philippines.
In its Property Market Report for the second quarter, Colliers Philippines noted that the “accelerated economic growth during the second quarter was echoed by the office property market, where high occupancy levels have been sustained by the business process outsourcing industry.”
According to the report, an estimated 75,000 square meters of new office net usable area (NUA) were completed in the second quarter of this year, bringing Metro Manila’s office stock to around 7.7 million sqm.
“Polaris in Alabang is the largest building completed offering an NUA of 23,800 sqm, representing one-third of the total additional space delivered during the period. The completion of Ortigas Technopoint One raised Ortigas Center’s office stock by around 14,500 sqm,” the report stated.
“Other buildings that went online from April to June 2016 are in the peripheral areas of major business districts, including MJ Corporate Plaza (16,600 sq m) in Chino Roces, Makati; UP Town Corporate Center (5,400 sq m) in Quezon City; and Starmall Las Piñas IT Hub (14,400 sq m) in Las Piñas. The delivery of additional office space in the fringe areas indicates the growing demand for office space outside the major business districts,” it further reported.
Colliers Philippines disclosed that no building was completed in Fort Bonifacio in the second quarter of 2016, unlike in the previous quarter where the business district accounted for more than half of the new office space.
“The completion of Metrobank Center, originally scheduled in the second quarter, has been pushed back to 4Q 2016. Other office buildings in Fort Bonifacio expected to go online this year include Inoza Tower, Vista Hub, Citibank Plaza, and W City Center. Fort Bonifacio covers nearly half of the total amount of office space projected to go online this year. We expect One Felicity Center in Quezon City and Scape in Pasay, both initially set for completion in second quarter of 2016, to go online in the third quarter of 2016,” the report stated.
As such, Colliers Philippines said it expects that the volume of new office space completed by the end of 2016 will be much lower than initially projected.
It explained: “Construction delays have plagued many of the projects now being built, leading to a significant decrease in actual completions. This will mean that the market will continue to be tight until 2017, so office developers will not need to worry much about falling rental rates, at least for the short term.”
The office market in the Makati Central Business District remained tight due to the lack of new supply. The vacancy rate in the Makati CBD for the second quarterwas almost flat at 1.65 percent, down by 3 basis points from the previous quarter.
Colliers reported that vacancies in premium buildings increased to 0.5 percent from 0.3 percent while those for Grade B buildings rose to 1.3 percent from 1.1 percent.
“The increases, however, were offset by a decline in vacancies among Grade A buildings, including Petron Megaplaza and Tower 6789. Overall vacancy in Makati CBD has been declining since 4Q 2015. Colliers expects vacancies in the business district to continue to drop since no new office buildings are coming up until 2018, apart from the reintroduction of the renovated Insular Life Building in 2017,” it said.
Meanwhile, vacancies among Fort Bonifacio office buildings dropped from 2.6 percent to 1.7 percent due to strong leasing in Grade A buildings such as Net Park, SM Aura, One World Square, and Net-1 Center, the report stated
“The strong take-up among Grade A buildings more than offset the rise in vacancies in Grade B buildings. Fort Bonifacio has long established its position as the country’s major hub for higher value Knowledge Process Outsourcing (KPO) services. Colliers predicts vacancies in Fort Bonifacio will remain at around 1.7 percent over the next twelve months due to sustained demand from outsourcing firms, which should temper the significant amount of additional office space being completed in the area,” the consulting firm explained.
It further noted that in the past few years demand has usually picked up during the second half. As such, availability would continue to tighten by the end of the year.
“Colliers has also observed strong pre- leasing activity in some of the buildings that will only be completed in the next 12 months,” it added.
According to Colliers, relocations from established CBDs to emerging areas such as Aseana City are now being seen, which could be attributed to cost considerations given the lower rates in these emerging areas. This trend is seen to continue.
Stable rental rates
For the second quarter of 2016, premium rental rates in Makati CBD reached P1,293 per sqm a month, up by 1 percent quarter on quarter.
“Rents also grew faster among Grade A buildings, with average rent reaching P919 per sqm from P915 per sqm a month, representing a 0.4 percent rental rate growth. Rents for Grade B buildings were essentially flat at P843 per sqm. Rates in Makati CBD continue to rise due to the lack of available office space coupled with sustained demand from both BPO and non-BPO companies. Colliers sees rents in the business district rising between 5 percent and 10 percent over the next 12 months,” Colliers said in its second quarter report.
“In Fort Bonifacio, Grade A office rents averaged P897 per sqm a month, up by 0.3 percent quarter on quarter. Grade B rents rose 1.8 percent quarter on quarter to P782 per sqm. Colliers expects rents in Grade A buildings to accelerate by 8 percent to 10 percent over the next 12 months,” it further said.