WHILE both the outsourcing and offshore gaming sectors in the country may face challenges today, the office market has remained resilient and is expected to set another record-breaking performance by the end of 2019, according to a study.
Pronove Tai International Property Consultants’ Q3 Metro Manila Office Market Overview and Full Year Outlook report said actual leasing deals from July to September of this year aggregated to about 305,000 square meters (sq m). These include leasing and prerental transactions.
Of this demand, traditional offices accounted for 40 percent or 122,000 sq m. This was followed by information technology and business-process management (IT-BPM) at 32 percent or 96,000 sq m; Philippine Offshore Gaming Operators (Pogos), 23 percent, 71,000 sq m; and flexi-workspaces, 5 percent, 16,000 sq m.
“The third quarter proved to be an exceptionally strong period for the traditional firms with a significant 61-percent growth YoY [year-on-year] from only 76,000 sq m last year. The top 5 growing industries were banking and finance, food and beverages, insurance, government offices, and real estate,” said Monique Pronove, president and chief executive officer (CEO) of Pronove Tai.
She noted that the IT-BPM and Pogos, though slack a bit, continued to be among the main drivers of office demand in the country while they may be facing a setback due to policy issue.
The Office of the President imposed in June Administrative Order 18, a moratorium on the issuance of Philippine Economic Zone Authority (Peza) accreditations in Metro Manila. This was part of the government’s decentralization plan to push stronger economic activity in suburban areas.
The Philippine Amusement and Gaming Corp. (Pagcor), on the other hand, announced in August that it will no longer grant licensing permits to new Pogo applicants until the year-end.
“Despite headwinds faced by the IT-BPM and Pogo occupiers, the office market showed strong demand and is on track to another record-setting year,” she said.
Pronove noted that Makati had the most leasing transactions at 28 percent or 84,000 sq m, seconded by the Bay Area, 20 percent or 60,000 sq m, characterized mostly by Pogos; and then Quezon City, 17 percent or 51,000 sq m, with IT-BPM as a main tenant.
With a healthy take-up on the office space, vacancy level decreased to 5 percent in the third quarter of this year from 6 percent the previous quarter.
Unoccupancy was still tight in the Bay Area (Pasay and Parañaque) and Makati at 0.4 percent and 2 percent, respectively. Ortigas Center had a vacancy level of 5 percent, while Muntinlupa and Taguig registered 6 percent during the period.
“Though the office vacancy decreased from 12 percent in Q2 to 11 percent in Q3, Quezon City still had the highest vacancy in Metro Manila at over roughly 150,000 sq m. This could be attributed to the slow leasing absorption for its new building completions in the past two years as it only recently opened its market to Pogo occupiers,” the top executive cited.
Development-wise, 15 new buildings were completed from July to September, adding 402,000 sq m to office stock in the metropolis. This brought the “All Grade” segment inventory to 11.4 million sq m.
Quezon City and Taguig partook 82 percent of the total supply for the quarter, adding approximately 230,000 sq m and 101,000 sq m, accordingly.
“This has been Quezon City’s highest recorded supply in a quarter. We saw a 10-percent growth YoY in Quezon City coming from nine buildings. This alone accounted for 57 percent of the new supply in Metro Manila this quarter,” Pronove said. “Makati, Muntinlupa and the Bay Area had only one to two buildings completed while Ortigas Center and Mandaluyong had no completions.”
Makati and Taguig recorded the top rents in the city with asking prices of P1,610 and P1,340 per sq m a month, respectively. Both districts posted the highest rental growth over the year at 6 percent and 7 percent, accordingly.
“The office leasing market remained strong and we project it to reach 1.2 million sq m by the end of December 2019. This would breach last year’s record performance by 9 percent,” she said, while citing their vacancy projection at a healthy 4 percent to 5 percent rate by the end of 2019.
With this in mind, the president and CEO of Pronove Tai urged the government to back the business community’s call for ease of doing business, particularly in Quezon City where supply is abundant.
“We are also hopeful that the long awaited Real Estate Investment Trust [REITs] IRR [implementing rules and regulations] will be finally passed for more investment instruments in the Stock Exchange,” she said. “As for our clients, we advise them that diversity in their tenancy mix is important and for investors to be diligent in their property acquisitions.”