TAKING advantage of the strong market demand for office space, developers are now in a pre-leasing spree, property analysts noted, with 30 percent of expected new supply for 2016 already pre-committed to prospective tenants.
According to global property advisor Colliers International, pre-leasing has become a trend among developments in Metro Manila.
In 2015, pre-leasing covered 44 percent of new buildings, Colliers said.
For 2016, the real estate services firm noted that so far, only 59 percent of the expected new office units in Metro Manila are available for lease, as 30 percent have already been pre-committed, while the landlords occupy 11 percent, themselves.
Colliers said pre-leasing activity in the Philippines’ capital region is even higher than in other Asian cities, such as Shanghai, which has only 11 percent pre-leased; Taipei, with 10 percent; and Bengaluru, 8 percent.
The property advisor said pre-leasing gives landlords immediate revenue recognition, while building their project’s reputation in the market.
“These benefits are more relevant today that the office space segment is still in an up trend,” Colliers said.
Colliers sees the pre-leasing trend in Metro Manila going on until 2017, backed by a bullish market in Fort Bonifacio and also in areas outside the major business districts of Makati and Ortigas.
“While outlook for demand is also positive in the next two years, supply is expected to remain more than sufficient,” Colliers said. “Thus, this pre-leasing trend will likely continue, at least until the planned projects are filled up.
Claro Cordero Jr., head of research and consultancy at United States-based real estate services firm Jones Lang Lasalle, had the same opinion.
“Pre-commitment has been an on-going trend in the commercial property sub-sector in the last few years, and we expect that this trend will continue in the next few years,” Cordero said.
He noted that the trend posts benefits for both the tenants and the developers of the buildings.
Advantages for tenants include the potentially favorable rents and improved financial terms, such as rent-free periods, cash incentives, and even reduction in fit-out costs, as well as the ability to prescribe or influence the design and specifications of the building.
On the part of the developer, Cordero said some of the advantages are the reduction of development risk, help in financing the construction, and the chance to tailor fit the development to the prospective tenant or investor’s prescriptions.
Antton Nordberg, head of research at KMC Mag Group, the Philippine associate of London-based property advisor Savills, said pre-leasing also reduces the risks on the developers’ part and even secures return on their investment.
“Of course, they prefer to lease it out as early as they can,” Nordberg stressed. “Without tenants, the building has less value. It is not generating income, so there is no return on investment.”