Office property sector expanding

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METRO Manila’s office property sector is experiencing rapid expansion in the second half of the year due to a strong occupier market, driven mainly by the IT-business process outsourcing industry.

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This was the assessment made by local real estate agency KMC Mag Group in its bi-annual report, co-published with its associate, UK-based real estate advisor Savills.

In the report, KMC Mag noted the expansion shifting to other submarkets in Metro Manila, from the usually popular Makati central business district (CBD), for lack of developable land.

The group said the Bonifacio Global City (BGC) remains to get most of the attention, accounting for about half of the new office developments.

Increasing interest has also been observed, though, in emerging submarkets, especially in Quezon City and the Bay Area.

“This is a result of the increasing pressure on real estate to facilitate all the businesses, which the tradional CBDs cannot handle anymore,” the report, written by KMC Mag Head of Research Antton Nordberg stated.

According to the report, the IT-BPO sector boosted annual take-up to 430,000 square meters in 2014, and is expected to reach 400,000 square meters this year with no signs of slowing down.

“The IT-BPO industry is expected to continue to drive the strong demand in the office sector, as global firms continue to seek reduced costs,” said Nordberg. “With sustained demand, modest rental growth and a low vacancy rate, the office pipeline is expected to be absorbed and yields expected to remain attractive for core assets over the next few years.”

He added that tenants, especially the BPOs, are in search of cheaper occupancy costs, and are thus more open to locate in secondary business districts, which allow them to emerge rapidly.

Rapid expansion in the office market will add around two million square meters of new office space until 2018, to the current stock of 3.7 million square meters, the report said.

However, the report noted that the current growth rate of 5.4 percent year-on-year in the second quarter of 2015 is slightly slower than the 7-10 percent range that was observed in the past few years.

The report said this is because of the supply factors, which “signal healthy market dynamics.”

“The rather large pipeline has helped to restrain rental expectations and improved the occupiers’ position in rental negotiations,” the report said. “Since a significant share of leasing transactions is still focused on preleasing, this has resulted in relatively good terms for tenants with the luxury of time.”

Meanwhile, a new stock of office spaces will also be added in Makati CBD, with the redevelopment of Ayala Triangle and the City Gate Complex, although this supply will likely hit the market after 2018 yet, the property consultancy firm said.

“Despite the strong demand,” it said, “the large pipeline is expected to maintain a downward pressure on rental growth and slightly increase vacancies, especially in 2016 when the supply is expected to peak with 630,000 square meters to be introduced in the marketplace.”

It added: “Most of the supply pressure exists in BGC which accounts for 340,000 square meters of 2016’s total additions, although around 47 percent of this is already pre-leased, encouraging developers to maintain the current construction activity.”

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