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Makati fast running out of office space

[ ] November 15, 2011

Makati City, the country’s central business district, is fast running out of land to build structures. The result is shortage of office space.

Consequently, rents have gone up from P820 per square meter in the first quarter of the year to the present average of P829.

John Corpus, associate director of CB Richard Ellis Philippines, a top real estate advisor, told Malaya Business Insight in an exclusive interview that "there is a shortage of office space in Makati."

Corpus pointed out that the city is nearly fully occupied and therefore "very crowded." He explained that there is very little land left to develop.

However, Corpus said, a temporary remedy is expected after the completion of the 33-storey office tower of Zuellig on Paseo de Roxas by the second quarter of next year.

There is an upside in the shortage of office spaces, according to Corpus.

He explained that business districts will come up in other areas such as Fort Bonifacio, Quezon City, Ortigas in Pasig, Alabang and Pasay City.

The Taguig side of the Fort is fast developing as a site for multi-tower apartment buildings, mostly undertaken by Ayala Land.

The occupancy rate for offices in Makati grew the least among business districts in Metro Manila in 2011, at a growth rate of only 5 percent from 2010.

"In other business districts, they leased entire buildings while the availability in Makati is smaller areas which are spread in multiple buildings," Corpus said.

The growth rate for occupancy in Fort Bonifacio was the highest at 21.3 percent, while Quezon City, Alabang, and Ortigas followed with 21.09 percent, 19.17 percent, and 8.95 percent, respectively.

"These individual growth rates in occupied space translate to an overall (all the five business districts) growth in occupied space of 12.56 percent," Corpus said.

"Vacancy rates would give an indication on the trend of demand in the market. In 2011, vacancy rates have been falling, which signify that more office spaces are being occupied," he added.

A 7 percent year-on-year increase in rental rates in Makati office space has been reported by CBRE.

"Rents were higher because of supply pressures. A low supply results in a higher rent until supply stabilizes," he said.

Corpus noted that office projects in Makati have been one of the main drivers of the fast emerging condominium developments in the city nowadays.

Condominiums complement office developments by providing homes to employees, Corpus explained.

"In essence, it is actually office development that influences the investments in condominiums. If there is a growth in office developments, condominium demand is likely to increase," he said.

However, Corpus noted, that this does not mean that selling and developing residential units are now more attractive to most developers than building office projects.

"Developers build projects depending on the highest and best use of the land. Therefore, whether to build condominiums or offices depend on the specific attributes of the land like location, restrictions, competition, etc.," Corpus noted.

But Corpus maintained that Makati will still be the center of commerce in Metro Manila.

"Makati will continue to be the central business district in Metro Manila at least for the next 5 to 10 years since the majority of the big multinational companies are still located in this city," Corpus noted.

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