By Arra B. Francia
AVERAGE VACANCY rate for office spaces in Metro Manila will likely hit 7.1% this year as more than 800,000 square meters (sq.m.) of new office supply is seen to enter the market in 2019, according to real estate services firm KMC Savills.
“Vacancy could hit 7.1% in the short term, largely caused by Quezon City,” KMC Savills Managing Director Michael McCullough said during the company’s fourth-quarter office briefing in Taguig City last week.
Quezon City currently has the highest vacancy rate among Metro Manila office markets at 16.4% as of the end of the fourth quarter of 2018, compared to 8.7% during the third quarter. This could further rise as it has 92,048 sq.m. of office spaces in the development pipeline until 2022.
KMC Savills Research and Consultancy Manager Fredrick H. Rara said the largest supply pressure will come this year, before eventually easing in 2020. The company said 746,900 sq.m. of new Grade A office supply were completed in 2018, while only less than 600,000 sq.m. are set to be finished in 2020.
With the high vacancy rate in Quezon City, rents also declined by 0.2% to an average of P747.4 per sq.m. every month.
“But in the long term, our data shows that vacancy will be manageable. Anything less than 10% is very good,” Mr. McCullough said.
While recording a two percent vacancy rate by the end of the fourth quarter, Ortigas Center is seen to post double-digit vacancy rates this year as new supply will come in from the Podium West Tower in the first quarter.
“Although elevated vacancies typically pull rental growth down, improvement in the quality of the overall stock in Ortigas Center should correct the rental disparity between the established central business districts,” according to KMC Savills.
Recording the second-highest vacancy rate by the end of the fourth quarter was Bonifacio Global City, following the addition of 26,000 sq.m. from Century Properties Group, Inc.’s Asian Century Tower.
The higher vacancy rate, however, did not temper the rise in rental rates at 5% year on year, averaging at P972.8 per sq.m. due to the sustained demand from the outsourcing and offshoring industry.
The Bay Area recorded the lowest vacancy rate at the end of the fourth quarter at only 0.6%, which KMC Savills attributed to the steady demand from Philippine offshore gaming operators.
“The Bay Area is a really interesting story because of the entertainment district, there are three casinos currently fully functioning and a fourth one under construction. I think it’s set to exceed Makati’s Grade A office in the coming years, and given how close it is to the airport and infrastructure projects, it will really be a force to be reckoned with,” Mr. McCullough said.