Green dev’t helping to drive office sector

By May 25, 2017Uncategorized

The office property sector is expected to maintain its strong growth this year, with a significant part of the expansion being driven by growing demand for “green” buildings.

Eton Centris, which will soon be powered almost exclusively by renewable energy, is one example of the growing presence of “green” office buildings in the Philippines. eTon PRoPeRTieS PhoTo

“Metro Manila’s office market remains to be (very) vibrant with better-than-expected performance in the first quarter of the year,” KMC Savills Managing Director Michael McCullough said at the recent Philippine Model Cities forum of The Manila Times.

The KMC Savills research concluded that a rebound in both private and public investments in the Philippines is in the offing, McCullough said.

Public investment is the amount of money invested by the government on new infrastructure projects. In its Build-Build-Build website, the government has projected that 8 to 9 trillion pesos from 2017-2022 will be allotted for infrastructure spending by the Duterte administration.

During the first quarter, Metro Manila added 162,200 square meters of office space. Bonifacio Global City (BGC) in Taguig accounted for two-thirds of the fresh supply with the completion of Citibank Plaza and W City Center, McCullough said.

Although the vacancy rate was held in single digits, rental growth continued to normalize at 3.7 per cent. The Makati Cental Business Disrict (CBD) maintained its premium in the capital after rentals grew by 3.8 percent year-on-year, outperforming other submarkets, he added.

KMC Savills’ view was largely shared by Colliers International Philippines. In a report on the first quarter performance of the office property sector, Colliers Senior Research Manager International said, “Metro Manila office net take-up reached 81,400 sqm of gross leasable area (GLA) for this quarter, as vacancy remained low despite new completions.”

Colliers, as did KMC Savills, noted some shift in the tenant mix for new office space. “Pre-leasing is still strong with over 40 percent of buildings due (this year) leased out. A significant shift in tenant mix was seen with the BPO (business process outsourcing) share representing only 21 percent of total transactions, down from 60 percent (last year),” said Macaranas.

The decline in BPO share is a characteristic of geopolitical concerns “forcing tenants to take a wait-and-see position on new expansions and the delay in PEZA (Philippine Economic Zone Authority) proclamations,” he added.

Green demand

Along with the shifting tenant mix, KMC Savills also noted a growing demand for “green” buildings.

“With the impressive take-up of green buildings in the first quarter, we expect these developments to slowly dominate the Metro Manila skyline as the outsourcing and offshoring (O&O) sector continues to expand,” McCullough said in his presentation.

As one example, Eton Properties last week signed an agreement with AboitizPower to supply renewable energy to its BPO buildings at Eton Centris in Quezon City. AboitizPower’s Makban geothermal power plant in Bay and Calauan, Laguna and Sto. Tomas, Batangas will now supply Centris, the developer said.

The geothermal facilities have a combined generating capacity of 390 megawatts.

An earlier report by KMC Savills noted that there were at least 22 office projects at the beginning of 2016 that had either applied for or had already been granted Leadership in Energy and Environmental Design (LEED) precertification.

Encouraging outlook

McCullough said the expansion of the outsourcing and offshoring (O&O) sector would continue to be among the major growth drivers of the economy. The sector generated 1.23 million jobs and $21.8 billion in revenues in 2015.

As a consequence, vacancies would remain “very tight” despite supply additions. McCullough said that KMC Savills were “expecting about 781,800 sqm of additional office supply within the year.”

“Downward pressure on rents should persist in the coming quarters, however market appetite remains largely intact as evidenced by the brisk absorption of new completions during the quarter,” said McCullough.

The better than expected achievement quarterly should ease concerns of double-digit vacancy rates in Metro Manila in 2017. McCullough indicated that, “as occupier demand tries to keep up with the upcoming supply, vacancies may stay relatively elevated in the coming years.”

To best meet demand, Colliers’ Macaranas suggested, “Developers (should) build office spaces with sizeable floor plates to cater to BPOs, while allowing division of floors to meet demand from other tenant types.”
Macaranas said he “expects demand to grow by 8 percent in the next 12 months.”

Colliers agreed that vacancies would remain low despite new office completions. Macaranas expects overall Metro Manila vacancy rates to hover between 4.5 percent and 5.5 percent in the next year.

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