The office development in the Philippines boasts a relatively low vacancy rate in the first quarter of 2018 despite increased rental rates in prime corporate areas such as Makati, Bonifacio Global City and Ortigas Central Business District, according to the latest research of KMC Savills Inc., a leading and award-winning real estate services firm in the country.
This performance is stellar due to an additional increase of 767, 000 square meters of gross leasable area (GLA) this 2018.
For the first quarter of 2018, the net absorption in Makati CBD has recovered as vacancy rates improved to 2.1% despite having no new supply during the quarter. This was lower compared to the 2.5% vacancy rate in last quarter of 2017. Average rents in Makati CBD increased to P 1, 060.20 per square meter monthly, showing accelerated increase of 3.2% year over year (YoY).
According to KMC Savills, vacancies remained tight in Makati CBD during the quarter but the incoming supply of 53,800 square meters in the coming quarters of 2018 should ease conditions in the submarket. However, the vacancy rate is still expected to be one of the lowest among submarkets, proving that the country’ business district still remains as the top choice for office occupiers.
Meanwhile, another preeminent business district, Bonifacio Global City, welcomes 38,200 square meters of new office space in first quarter of 2018. The net absorption exceeded the new supply though which drove down the vacancy rate to 4.3%. This is despite the 3.5% increase in its rentals rates. Rentals in BGC averaged at P 937.80 per square meter per month in the said quarter.
In the remaining months of 2018, BGC has the largest development pipeline among submarkets which is pegged at around 247,100 square meters. Despite the strong take-up in past quarters, it is expected that the incoming supply will push vacancies upward, even close to double digits.
Alabang CBD had one of the fastest rental growth rates at 3.9% YoY, given its tight market conditions. It has achieved the lowest vacancy rate in first quarter of the year at 1.2%. This can be attributed to the lack of new Grade A office supply coupled with its sustained robust demand for the period. It is also apparently because of its steady low rental rates. Among the submarkets covered by KMC Savills, Alabang still has the lowest rental rate of Php 653.0 per square meter monthly.
Although there were no new completions during the quarter, approximately 88,400 square meters of office space is forecasted to be completed in the succeeding quarters of 2018. KMC Savills is also expecting for Alabang CBD’s leasing activity to be sustained, but vacancies may rise above 5.0% of total stock by the end of the year.
There was no new supply introduced in Ortigas CBD during the first quarter of the year. Although net absorption was relatively weaker, the submarket still pushed the vacancy rate down to an impressive 3.4%. Rental rates in Ortigas CBD also increased by 1.9% YoY. This rental rate increase YoY though still remains the slowest among submarkets.Comparatively low vacancy rates in Ortigas CBD are expected for the rest of the year, as only around 43, 000 square meters of office space is anticipated to be completed in 2018.
The real estate consultancy firm also saw a robust demand in the Bay Area, which drove vacancy rates to decline to 1.4% of the total office stock in first quarter of 2018. This is a remarkable growth in business as the area had 3.9% vacancy rates last 2017. Rental growth in the submarket was maintained at 6.5% YoY, with average rents around P 746.80 per square meter every month.
Around 141,100 square meters of new office space is expected to become available in the Bay Area in the coming months. KMC Savills said they are expecting some supply pressure to ease rental growth, but this may be counteracted by the increased interest in the submarket from online gaming operators.
The vacancy rate in Quezon City is still the highest among submarkets at 10.4% in the first quarter of the year. However, net absorption of 34,500 square meters kept vacancies at a manageable level despite the completion of the second office tower in Vertis North.
The rental growth in Quezon City decelerated to 2.7% YoY, as the sustained level of vacancies in Quezon City dragged the overall performance. The elevated vacancies may continue in the coming quarters, given the upcoming completions in Eton Centris and Vertis North. However, pre-leasing activity in these townships are promising, and may indicate better market absorption rates in the coming quarters.
KMC Savills also expects business from other submarkets such as McKinley in Taguig, Makati Fringe which includes Rockwell Center, Century City and Circuit Makati; Greater Ortigas which includes Capitol Commons, Portico, Robinsons Cybergate Center and Greenfield District; and C5 Corridor, which covers the stretch of the C5 road from Quezon City to Pasig City.
Approximately 88,800 square meters of incoming office stock in the submarkets mentioned is estimated to be online by 2Q/2018. Zeta Tower in Bridgetowne is scheduled to add 32,000 square meters in the C5 Corridor, while 34,500 square meters of 10 West Campus in McKinley West are looked forward as well. The modest influx of supply is expected to push vacancies upwards in their respective submarkets.
Leasing activity in these submarkets continues to be strong which is reflected by the healthy absorption rates across all submarkets. Moreover, KMC Savills still expect market conditions to be sustained with the growing presence of offshoring and outsourcing firms in these areas.