THE office vacancy rate in the Alabang central business district (CBD) has been running high this year, ending at 16 percent in the third quarter, according to KMC Mag Group, the Philippine associate of global real estate service firm Savills.
Property analysts forecast that the market might slowly absorb the excess stock in two to three years’ time if landlords bring their rental rates down and if not much developments would come in soon.
After all, they said, Alabang is still seen as a preferred location, as it captures the labor pool in the south.
But the high vacancy rate does not necessarily equate to a glut or a bubble, said Antton Nordberg, KMC Mag Group’s head of research.
“A bubble means that the prices have increased dramatically, which they have not,” pointed out Nordberg. “The rental rates might be a bit overpriced, which in turn hasn’t translated to demand, which is a sign of a healthy market dynamics. Now the spotlight is on the landlords on if they will adjust to the market.”
He said the high vacancy rate was due to too many developments going on in the area.
“The double digit vacancy has been there since the completion of a couple of new buildings early this year,” Nordberg said. “The vacancy could be attributed to weak demand that does not support the levels of supply being turned over. The latest supply hasn’t been absorbed yet. Perhaps, the rental rates are too high and would need some downward adjustment.”
Julius Guevara, director of another global property services firm in the Philippines, Colliers International, agrees, noting that the stock or supply of office space was just too much for Alabang.
“It’s because in the end of 2014, there were several new buildings—four new buildings that were launched,” Guevara recalled. “It’s still taking time for them to be absorbed because there’s a big amount of stock for that particular area.”
Considered a promising CBD in the southwestern part of Metro Manila, Alabang has attracted investments from some of the country’s biggest developers—Filinvest Land, Ayala Land, Megaworld, and Vista Land.
Alabang posted the highest vacancy rate among the rest of the metropolis’ CBDs, according to KMC Mag Group’s latest report.
The agency noted that Alabang has been posting two-digit vacancy rates since the fourth quarter of 2014, when around 78,000 square meters of office space was turned over.
It added that Alabang was the only business district to register a two-digit vacancy rate among Metro Manila cities, in contrast to the other districts’ vacancy rate of less than three percent.
“Given Alabang’s office market performance in the last few quarters, rental rate growth is expected to decelerate, or even compress, in the next three years,” KMC Mag reported.
Guevara foresees the vacancy levels in the Alabang area to be “a bit challenged” in the next two years, as there are still new buildings set to come in 2016.
“I think the vacancy levels in that area will be a bit challenged at least in the short-term,” Guevara noted. “For the next, probably, two years, it would be somewhat elevated.”
Guevara foresees the office vacancy rate in Alabang to remain in double-digit levels this fourth quarter, although no new stock is expected to come until 2016.
“In medium term, if there won’t be any new introductions in that area, the vacancy levels will gradually subside,” Guevara said. “After 2017, may konti pa ring nakaplano eh. (there are still new stocks being planned). So, I would say, especially in that part of the metropolis, vacancy levels will be a bit higher. In fact, we’re projecting an increase in overall vacancy rates all over Metro Manila, just because of the sheer amount of new supply coming in. It’s going to be much higher than the level of demand we’re projecting.”
“There is currently 211,280 square meters of supply in the development pipeline from now until 2018,” Nordberg said. “For 2016, this includes the ATC BPO Building, South Park Corporate Center, and Vector Three for a total of 94,184 square meters within 2016 alone. Some of these, though, have seen strong pre-leasing activity.”
Meanwhile, Quezon City posted the lowest vacancy rate in the third quarter at 0.2 percent, KMC Mag reported, as supply remains scarce in the district.
“Available Grade A office spaces in the district will remain scarce in the short-term with no new developments coming online until the second half of 2016,” said the report.
The Bay Area follows Quezon City, with 1.3-percent vacancy rate, in spite of the turnover of the Five Ecom center, which was mostly pre-leased.
KMC Mag said around 240,000 square meters of office space will be delivered in the district before 2018.
Office vacancy rate in the Ortigas Center was at 2.5 percent, which property agent forecasts to stay low, as no new office stock will come into the market until the end of 2016.
On the other hand, office vacancy rate in Bonifacio Global City (BGC) slightly increased in the third quarter to 2.6 percent from 1.3 percent in the second quarter.
KMC Mag noted that BGC absorbed most of the new office supply that entered the market in the third quarter.
“With its office stock expected to double within the next three years, rental rate growth is projected to ease in the coming quarters and vacancies expected to increase,” KMC Mag reported. “However, the market is still expected to see sustained demand from the IT-BPO industry and multinational companies moving to BGC.”
The Makati CBD posted a vacancy rate of three percent in the third quarter of 2015, with most of the available spaces located in the sparsely occupied Tower 6789.
“The unavailability of developable land in the Makati CBD will keep vacancy rates low until 2020,” KMC Mag said.