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Manila office rents among fastest growing in Asia

Posted on October 12, 2015 09:35:00 PM [ BusinessWorld Online ]
By Daphne J. Magturo, Reporter

THE GROWTH in Metro Manila’s office rental rates will be among the fastest in Asia in the next 12 months, with Bonifacio Global City (BGC) accounting for the bulk of pent-up demand, KMC MAG Group, Inc. said.

 

 A VIEW of the Makati financial district on Jan. 31, 2011. -- AFP

“Manila’s office market is witnessing a rapid expansion at the moment... a result of the strongly performing occupier market which is driven by the IT business process outsourcing (IT-BPO) industry,” the property consultancy firm said in its Asian Cities Report: Manila Office 2H 2015 dated Oct. 8.

KMC MAG said the IT-BPO sector, which took up 430,000 square meters (sq.m.) in 2014, is expected to occupy 400,000 sq.m. this year “with no signs of slowing down.” The industry employed 1.03 million Filipinos last year and the IT and Business Process Association of the Philippines said on Oct. 5 that it is “confident of hitting” the 1.2 million employee target for 2015.

This prompted KMC MAG to maintain its “bullish outlook” on Manila’s office sector, with rents and capital values projected to grow by 5-7% over the next 12 months.

“5-7% is comparing rather well to other markets. I believe only Tokyo and Jakarta are posting similar growth rates while majority of other cities are between 1-2%, so it’s among the fastest,” Antton Nordberg, Research and Consultancy Manager at KMC MAG, said in an e-mail interview yesterday.

KMC MAG said other submarkets are “gaining traction,” especially BGC, which will supply half of the 2 million sq.m. new office space in the market until 2018.

“A lion’s share of the supply pipeline will arise in BGC. In terms of growth expectations, I’m more conservative for BGC than for overall in Manila because of the supply pressure,” Mr. Nordberg said.

He noted a 3-5% increase in BGC’s rents and capital values for the next 12 months.

The remainder of the new office space will be “widely scattered” among Metro Manila’s main business districts, as a result of the “increasing pressure on real estate to facilitate all the businesses which the traditional CBDs cannot handle anymore.”

Because the outsourcing industry is “price sensitive,” tenants are willing to move to secondary business districts with cheaper occupancy costs such as Quezon City and the Manila Bay area,” KMC MAG said.

Makati will be able to provide additional stock through the redevelopment of the Ayala Triangle and the City Gate complex, but this will likely be available after 2018, “forcing companies looking for prime space to revert to BGC.”

“Despite the strong demand, the large pipeline is expected to maintain a downward pressure on rental growth and slightly increase vacancies, especially in 2016,” KMC MAG said.

Next year’s office supply is expected to peak, with 630,000 sq.m. to be added to the market.
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