Metro Manila’s office property market is still booming, with property developers vigorously building new office spaces to meet growing demand.
According to a report by property consultancy firm Colliers International Philippines, office supply in the capital region rose by about 190,000 square meters (sq. m) to 11.3 million sq. m in the second quarter of this year. Thirty-three percent of the new office space came from Alabang in Muntinlupa City.
Instead of rising as a result of the increase in the stock of office space, vacancy rate actually dropped from 5.4% during the preceding quarter to 4.9%. And this is because of the “substantial absorpotion of office space in Quezon City and Ortigas CBD and its fringes,” the report said.
By 2021, Colliers predicts that Metro Manila’s leasable office stock will reach 14.2 million sq. m., compared with 10.9 million sq. m. in 2018.
“About 54% of the new supply from 2019 to 2021 is likely to be in Ortigas Center, Fort Bonifacio and the Bay Area as developers respond to rising demand from non-outsourcing and offshore gaming firms as well as companies transferring to newer buildings,” the report said.
Annual vacancy rate will reach 6.1% from 2019 to 2021, Colliers estimates. “This is equivalent to an annual supply of 1.08 million sq. m (11.6 million square feet) and yearly net absorption of about 1 million sq. m (10.8 million square feet),” the report said.
Meanwhile, from 2019 to 2021, annual average rent is projected to grow by about 6% per year. “We still see healthy rental growth in sublocations such as the Bay Area as well as Makati CBD and its fringe areas due to offshore gaming operations and limited supply. We also see Ortigas Center rates catching up due to the turnover of new and high-quality office space as well as entry of offshore gaming operators,” Colliers said in its report.
Jones Lang LaSalle (JLL) Philippines, a professional real estate services firm, noted in own report covering the second quarter of 2019 that roughly 156,100 sq. m of office space was added to Metro Manila’s total stock, bringing the aggregate supply added this year to 336,700 sq. m.
“Development completions in 2Q19 are spread in several locations across the districts of Metro Manila within the Cities of Makati, Muntinlupa, Paranaque, Pasay, Quezon and Taguig,” the firm said in a statement.
Although JLL recorded a higher vacancy rate of 6% during the second quarter, the firm called it “manageable.” The City of Taguig had the majority of untenanted office spaces since majority of the recent development completions were in Bonifacio Global City, the firm said.
“Offshoring and Outsourcing (O&O) remain as the major demand driver, taking up approximately 128,100 square meters of office space in 2Q19. For the whole of 1H19, around 181,000 square meters of office space was absorbed by O&O firms. However, there has been a slow [quarter-on-quarter] take-up of office spaces from O&O firms in Metro Manila as they have expanded more in the provinces, owing to the limited PEZA [Philippine Economic Zone Authority] approvals for IT centers especially in Metro Manila,” JLL said.
Online gaming operators were the second top office space occupier in the first half of 2019, leasing 160,000 sq. m of office space, 119,200 sq. m of which in the second quarter alone.
“Pharmaceutical companies came as a surprise as a major demand driver to leased office spaces in 1H19, taking up an estimate of 45,100 square meters mainly due to their expansions within Metro Manila. Fourth top office space occupier for 1H19 are flexible workspace operators leasing 14,400 square meters of office space in Metro Manila,” JLL said.
In light of the national government’s moratorium on the processing of PEZA applications in Metro Manila, Colliers urges developers to pay attention to the demand of non-outsourcing occupants since these entities are not entitled to the tax incentives given to economic zone locators. “Developers should specifically watch out for the requirements of insurance, financial technology (fintech), engineering, construction firms as well as flexible workspace operators,” the firm said in its report.
Meanwhile, offshore gaming firms are encouraged to consider newly opened office spaces in Ortigas Center, while cost-sensitive non-ousourcing tenants, including government agencies and start-ups, may want to explore buildings in Quezon City that offer cheaper lease rates compared with those in Makati Central Business District and Fort Bonifacio. — Francis Anthony T. Valentin