METRO MANILA recorded the largest ever take-up of premium office space in the third quarter of 2015 as Information Technology (IT) and Business Process Outsourcing (BPO) firms continued to grow, while developers and building landlords seemed keen to lock in deals ahead of the 2016 elections.
In its latest report, KMC Mag Group, the Philippine associate of London-based real estate group Savills, said net take-up of premium and Grade A reached 231,412 square meters in the third quarter, the largest recorded take-up of all time.
The agency said this was due to the pre-leasing even before completion of most of the 232,961 square meters of new office space that came in during the period.
“Most of the new spaces delivered have been pre-leased prior to completion; that is why take-up is very high,” said KMC MAG Managing Director Michael McCullough.
Earlier this year, the Philippine unit of another global real estate firm, New York-based Cushman and Wakefield, said developers and landlords would be keen to pre-lease their buildings before the national elections next year.
“Now is the best time for tenants considering expansion or consolidation of their office, as developers and landlords are keen to pre-lease large chunks of their office space in upcoming projects by providing flexible and preferential terms to prospective tenants,” said Tetet Castro, Cushman and Wakefield’s director for tenant advisory group in the Philippines, in the agency’s Asia Pacific office forecast report for 2015-2016.
“The strength of the O&O (Offshoring and Outsourcing) industry makes the office market an attractive investment choice for both local and foreign investors,” said Joe Curran, Cushman and Wakefield Philippines General Manager, in the same company report.
“Capital values have posted steady growth in Manila’s core business districts, vacancy rates remain low, and the continued expansion of reputable multinational companies makes the office sector an attractive option.”
As expected, the IT and BPO sector remained the drivers of the office market, particularly in Metro Manila’s Central Business Districts (CBDs), based on KMC Mag Group’s research.
The KMC Mag Group’s report noted that around 1.8 million square meters of leasable office space is expected to enter the market by 2018, of which 51.8 percent will be located in Bonifacio Global City in Taguig.
“Despite the significant amount of new office space entering the Metro Manila office market in the medium-term, vacancy and rental rates are expected to remain stable due to strong pre-leasing activity,” said the report, written by Antton Nordberg, head of research at KMC Mag Group.
Meanwhile, KMC Mag Group Managing Director Michael McCullough noted that although most of the market is concentrated on the BGC area, the CBDs of Ortigas, Bay Area, and Quezon City are very attractive to new IT-BPO firms, who are just starting in the
outsourcing business because of the lower rates they present.
Nordberg said the Bay Area and Quezon City are projected to have the lowest vacancy rates and strongest rental rates in the next twelve months.
“Thanks to the sustained IT-BPO industry demand and the relatively low level of new supply in these areas, Bay Area and Quezon City are projected to have the lowest vacancy rates and strongest rental rate growth among the business districts within the next 12 months,” said Nordberg.
In the third quarter of the year, the Bay Area recorded the highest rental growth at 17 percent.
This brought the area’s average Grade A office rent to P673.4 per square meter a month, with the upper rental rate at P700.0 per square meter a month.
Second to the Bay area was Quezon City, which grew 8.5 percent year-on-year, with average rental rates running from P700.4 to P750 per square meter per month.
Rental rates in the Ortigas Center grew by 6.8 percent year-on-year, with average rental rates going from P624.6 to P750.0 per square meter per month.
The Makati CBD remains the most expensive of all, as rental rates for Grade A offices in the city averaged from P979.1 to P1,400 per square meter per month. Rental rates in the Makati CBD grew by 4.3 percent year-on-year in the third quarter of 2015.
Rental rates in Bonfacio Global City grew by 3.7 percent year-on-year, with average rental rates at P860.4 to P1,110.0 per square meter per month.
The Alabang office market posted the slowest growth in the third quarter, as rental rates went up only by 0.6 percent, with average rental rate of P605.3 per square meter a month.
WITH REPORTS FROM MARICOR ZAPATA