Attractive yields to boost PH office sector – KMC Savills

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The real estate market, particularly the office sector, is on track to grow further, supported by foreign investments.

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The attraction is the “exceptional” yields the market offers, according to a real estate services company.

“The Philippine market is offering exceptional yields right now compared to the rest of the region and even other markets in the world,” KMC Savills Inc. head of Research Antton Nordberg told reporters on Wednesday.

“That 7 percent office yield is very attractive especially when you benchmark that with the government bond yield,” Norberg said.

Aside from Vietnam, the Philippines is one of the countries offering highest yields in the region, he said.

“I think right now, Vietnam is the only market in the region that is offering higher yields that is around 9 to 10 percent. Vietnam, then Manila is around 7.5 percent,” Nordberg said.

Major markets such as Hong Kong and Singapore are offering office yields of about 2 to 3 percent, according to KMC Savills.

Along with the high yields and stable macroeconomic fundamentals, the Philippine office market is attractive to foreign investors, especially those looking for alternative, cost-effective locations for their businesses due to global uncertainties.

“The economic agenda for the country prioritizes countryside development, infrastructure and agriculture growth, and increased government spending.

“Pair this with the administration’s goal of positioning the Philippines as one of the top three destinations in Southeast Asia for FDI inflows by 2022, and we see a very positive outlook for the real estate industry,” said Michael McCullough, co-founder and managing director of KMC Savills.

“The property sector is continuing its growth momentum, led by the strong office space segment in Metro Manila.”

The demand for office space in Metro Manila remains strong this year, Nordberg noted.

“I’m expecting maybe 500 plus thousand (sqm) for the entire year, but we’ll see. Next year will be a record year in terms of supply, so we are expecting a record year in terms of take up, and I think I’m still pretty bullish that it can still be topped next year …” he said.

Based on the second quarter 2016 office report by KMC Savills, the net absorption of office spaces in Metro Manila totaled 291,000 sqm.

In contrast, the report noted the vacancy rates tightened to 2.9 percent in the second quarter of the year from 3.7 percent in the first quarter.

“We expect that . . . [vacancy rates]will start increasing but will still stay below 10 percent. I forecast that by the end of 2017, we will probably be seeing a bit higher vacancy rates, also going into 2018,” Nordberg noted.

KMC Savills reported office rental rates in Metro Manila grew by 1.2 percent quarter-on-quarter and by 4.6 percent year-on-year, driven by lower vacancy rates. The average rental rate in Metro Manila was at P863.9 per sqm. per month.

“However, the new supply in the coming years might put pressure on prices and result in a more modest rental growth as the competition among landlords escalates,” the company said.

Nordberg expects a 3.5 to 4 percent rental rate growth this year.

“It will probably stay at a similar range going into 2017,” he said.

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