WHILE some office buildings in major financial districts are not completed yet as scheduled, the overall inventory still grew by 3 percent with additional supply of 276,000 square meters (sq m) in the first quarter (Q1) of this year, mostly taken up by the information-technology and business process management (IT-BPM) industry.
“The office sector had a strong start to 2019,” Pronove Tai International Property Consultants (PTIPC) President and CEO Monique Pronove said during their recent media briefing.
Based on the Metro Manila Office Market Overview Q1 2019 report, the cities of Makati and Taguig continued to be the two largest office districts, accounting for 3.4 million sq m and 2.2 million sq m, respectively, of the total stock of 10.9 million sq m as of March 31, 2019.
Meanwhile, the third-largest district Ortigas Center posted the fastest growth in the first three months of this year at 6 percent based on the completion of only one building—the Podium West Tower—with 94,000-sq-m office spaces.
“Despite a 30-percent delay in construction delivery, the office supply in the first quarter was still 31 percent higher than the quarterly average in 2018. We projected 21 building completions this quarter but only saw 15 buildings delivered,” Pronove said.
The slowdown in building completion from January to March can be attributed to the cement shortage, PTIPC Research Manager Mike Munoz said.
“If not immediately resolved, [it] can lead to further delays throughout the rest of the year,” he cautioned. “There is an expected annual demand of 32 million metric tons while we only locally produce 25 MMT to 27 MMT. The imposition of the temporary tariff on imported cement can lead to further delays.”
From January to March 2019, a strong demand was recorded with 39-percent hike in actual transactions to 364,000 sq m from 260,000 sq m in Q1 2018.
Sector-wise, the IT-BPM has remained the top tenant in major financial districts in the country, accounting for 36 percent or 130,000 sq m of the transactions in the first three months of this year.
The industry mostly occupied office spaces in Taguig, making it the top location in terms of demand share for Q1 at 31 percent or 113,000 sq m.
The second-top occupiers were traditional offices at 35 percent, followed by the Philippine Offshore Gaming Operators (Pogos) at 29 percent.
Pogo demand rose by 118 percent year-on-year. From taking up 48,000 sq m in Q1 2018, this sector absorbed 106,000 sq m during the same period this year.
“Pogo’s leasing behavior has evolved into pre-leasing [leasing before the building has been completed] to match their requirements. Since there is very limited available space in Makati and Bay Area, they have already ventured into locations such as Pasig and Parañaque,” Pronove said.
Office vacancy in the metropolis is constantly manageable as the level of availability stands at 6 percent as of end-March 2019.
“We consider 5 percent to 7 percent as the manageable vacancy for the office sector—just suitable allowance for expansion and growth for the companies within the building or the district,” the top executive said.
The highest vacancy could be found in Quezon City (12 percent) and Mandaluyong City (11 percent). Meanwhile, Ortigas Center, Taguig City and Muntinlupa logged a healthy 7 percent.
Makati City and Bay Area, however, had the tightest vacancy registering only 3 percent and 1 percent, accordingly.
When it comes to rental rates, the report shows Makati continued to have a 21-percent premium at an average of P1,590 per sq m on a monthly basis for All Grade A office buildings, or an 8-percent rental growth YoY.
Taguig City surged 9 percent to P1,320 per sq m a month and Bay Area at 2 percent to P960 per sq m a month.
Pronove said the 40-percent office demand growth is “a good thing for the industry.” But for IT-BPM, she suggested a constant upgrade toward high-value services in the knowledge-process outsourcing subsector.
“This will help make our country competitive and enticing to IT-BPM investments,” she said. “We continue to call on the government to fast-track Philippine Economic Zone Authority proclamations.”
Founded in 2002, Pronove Tai is a fully owned Filipino property-services firm that provides expertise and quality services that include research and consultancy, landlord and tenant representation, property sales and purchasing, and property portfolio management.
To date, the company has had P13 billion worth of transactions in different market sectors, such as office, retail, industrial and petrol with over 1.2 million sq m of leasable space transacted.