THE completion this year of at least 10 noteworthy residential projects in Metro Manila’s three central business districts will push vacancy rates higher and rental rates lower, but open new leasing opportunities for property owners and developers, real estate services firm Colliers International Philippines said.
In its 1st quarter 2017 briefing presented on Thursday, Colliers said about 22,000 new residential units will be completed this year, which is about five times higher than the number of units delivered in 2016. The bulk of the new supply will come from the Manila Bay Area, driven by affordable to mid-income projects, the property services firm added.
The demand for high-end projects is “stable,” Colliers said, despite the large number of affordable and mid-range projects being built. “Colliers sees luxury condominium take-up being sustained by demand from expatriates and affluent families,” Colliers Research Manager Joey Roi Bondoc said in the first quarter report. The steady demand has spilled over to the Bay Area, he added, encouraging developers to continue to pursue high-end projects.
However, activity in the three main central business districts of Makati, Ortigas, and Bonifacio Global City, which will see a combined total of at least 10 residential projects completed this year will put some mild pressure on the market, Colliers said, increasing vacancy rates and driving rental rates downward, albeit only by a moderate amount.
Among the significant residential projects to be completed this year are The Beacon-Amorsolo Tower by Geo Estate Development Corp., Kroma Tower by Ayala Land, Three Central by Megaworld, and Shang Salcedo Place by Kuok Properties, all in Makati; One Uptown Residences by Megaworld, Avida Towers BGC 34th Street, and The Sequioa at Two Serendra by Ayala Land, all in Bonifacio Global City; and Zitan by Greenfield Development, The Currency by Crown Asia, and The Sapphire Residences-East Bloc by Robinsons Land in Ortigas.
“Vacancies in Makati CBD and Fort Bonifacio should rise to 14 to 15 percent in the next 12 months (from 13.3 percent and 11.7 percent, respectively), while Ortigas Center vacancy should be relatively stable at 6 to 7 percent,” Colliers said. As a result, “We expect rents to drop from 1 to 3 percent over the next 12 months,” it added.
Office market still tight
The situation in residential real estate stands in contrast to the outlook for the office market described in a separate report by Colliers released on the same day. Colliers expects high demand for office space to keep up increasing supply, driving rents higher by 4 percent to as much as 11 percent in some areas, and keeping vacancy rates at a low 4 to 5 percent.
In a market review presented at The Manila Times Philippine Model Cities Forum on Thursday, KMC Mag Group Managing Director Michael McCullough had a similar forecast for the office market, seeing rental growth to increase by 3.7 percent over the next 12 months and vacancy levels to “remain very tight.”
Residential leasing opportunities
The pressure on residential vacancy rates and rental rates, combined with high demand for rental property from a relatively young workforce is creating opportunities for developers and property owners, Colliers said.
Colliers’ Bondoc explained that the aggressive launching of studio and one-bedroom units over the past three to five years by a number of developers has led to a large supply, accounting for 70 percent of the residential stock in Metro Manila.
“For companies that have significant ready-for-occupancy (RFO) units, Colliers believes that leasing out these units either individually or even as shared units makes sense, as long as the leasing schemes do not go against the market positioning of the properties and do not lead to a deterioration of the projects’ perceived value,” Bondoc said. “With an oversupply of studio and one-bedroom units, we encourage developers to look at offering their properties to the short-term lease market.”
Colliers cited the example of Century Properties’ Siglo Suites, which has a program to assist owners to lease out units to short-, medium-, and long-term guests and tenants.
Another factor is the large millennial workforce, among which there is high demand for rental accommodations near workplaces, Colliers said.
“Colliers sees the demand for worker accommodation projects being sustained over the medium term given the growing number of highly-mobile young urban professionals who cannot afford to own their own apartment yet or rent a condominium unit within Makati CBD, Fort Bonifacio, and Ortigas Center,” Colliers explained. “The halfway houses are for CBD employees who want to live near their place of work. These types of accommodation units are also more practical for employees working in CBDs as the worsening traffic in Metro Manila only makes their commute to and from work more unbearable.”
Pointing out that the traffic situation would persist for at least a few years until some major infrastructure projects planned by the government are completed, Colliers said this presents opportunities for developers to build “worker accommodations” as well as condominium owners seeking rental income.