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Office stock up in Q1 but concern over cement supply lingers

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Makati business district skyline
Makati City saw additional office supply at 18,000 sq.m. in the first quarter of 2019. -- COMPANY HANDOUT

By Vincent Mariel P. Galang
Reporter

METRO MANILA’S office stock grew by 3% in the first quarter of the year, according to Pronove Tai International Property Consultants.

For the first quarter of 2019, Pronove Tai said the growth in supply is equal to 276,000 square meters (sq.m.). Makati City is still the top office district with additional supply at 18,000 sq.m.

However, Ortigas Center had the biggest growth among the eight districts considered in Pronove Tai’s report. Ortigas Center grew its supply by 6% or an addition of 94,000 sq.m. with the addition of The Podium West Tower, which is a joint venture of Keppel Land Ltd. and BDO Unibank, Inc.

“There are other developments that will be completed in Ortigas. We have Unioil (building) that I think will be completed by the end of this year, so whether it will be sustained we will continue to see increase in supply,” Monique Cornelio-Pronove, chief executive officer of Pronove Tai told BusinessWorld in an interview after the briefing.

Unioil Petroleum Philippines, Inc. owns Exquadra Tower, which recently held its topping-off ceremony. The 38-storey building is located along Exchange Road, Ortigas Center.




CEMENT SUPPLY
Pronove Tai flagged cement supply as the biggest concern for this year, noting this has already affected the pace of construction of some buildings in the first quarter.

“The delay is 30%. From 21 buildings that was supposed to be completed this quarter, we went down to 15 buildings. In terms of square meters the supply is 276 (thousand square meters). It was supposed to be 360 (thousand sq.m.),” she noted.

Michael Muñoz, research manager of Pronove Tai, said that the cement supply was largely affected by imposition of tariffs on imported cement. The annual cement demand of about 32 million metric tons goes to the construction of offices, residential and industrial projects, as well as public infrastructure.

“The tariff is around P8.40 per bag of cement, which was P1 (tariff) before, so that is almost eight times and how many bags of cements are we talking about. Definitely it will create a big impact,” Mr. Muñoz said.

“Cement is very important because we’re seeing in the next two years it will average around 900,000 thousand sq.m. of supply… Technically, we need more construction supply, particularly cement to complete these projects,” he added.

For Ms. Pronove, “to act on it now rather than wait or else the impact for real estate is that we will continue to have unhealthy vacancy. Vacancies will go down again and that will make our rates and capital values higher.”

ROBUST DEMAND
For the first quarter, the information technology-business process management (IT-BPM) sector accounts for the bulk (36%) of office demand or 130,000 sq.m. of space. This is followed by traditional firms at 35%, or 126,000 sq.m., and offshore gaming companies at 29% or 106,000 sq.m.

Makati City and Taguig City continue to command the highest rental rates at P1,590 per sq.m. per month (/sq.m./month), and P1,320/sq.m./month, respectively.

“It’s always supply and demand, so if your demand is very strong but your demand is low, then that will impact on your rents, your capital values. In Makati, the reason why it keeps going up… (because of) low supply,” Ms. Pronove explained.

Note that Makati City had a 3% vacancy rate, which can be considered unhealthy, while Taguig City had 7%. Makati City’s supply grew by only 1%, while Taguig City had no added supply for the quarter. While this may be good for investors since it will drive rents up, tenants can be at the disadvantage if this were to continue.