Robust office demand in the Makati CBD and Bonifacio Global City (BGC) was sustained in 3Q13, largely supported by the continued entry and expansion of offshoring and outsourcing (O&O) firms. Healthy demand was also backed by leasing activity from other sectors such as manufacturing, information technology, financial services, and banking.
Net absorption surged to 135,100 sqm in 3Q13, on the back of strong pre-commitment levels in newly completed developments. However, the average vacancy rate rose to 6.1% due to large unoccupied space in select newly completed buildings. Nonetheless, significant Grade A developments, such as The Enterprise Center, 6750 Ayala Avenue Office Tower and Citibank Tower in Makati CBD, exhibited stronger occupancy in 3Q13.
Key lease transactions in 3Q13 included O&O firms taking up space of 8,600 sqm in Science Hub Tower 4 in McKinley Hill, 2,600 sqm in Ecotower and 3,300 sqm in W Fifth Avenue in BGC.
Six new office developments completed in 3Q13 – Alphaland Makati Tower, Science Hub Tower 4, W Fifth Avenue, JY Campos Center, Globe Telecom Headquarters, and 8 Campus Place Tower 1. Apart from Alphaland Makati Tower, which is located in the Makati CBD, the other completed developments are situated within BGC and McKinley Hill. Altogether, the new developments added 188,000 sqm to the total office stock.
Property developer Century Properties announced new office projects in 3Q13 – a planned O&O office development in BGC and the proposed Forbes Media Tower in Century City in Makati City.
Healthy leasing activity helped push average rents higher by 1% q-o-q to PHP 9,756 per sqm per annum in 3Q13. Select landlords were observed to have increased their headline rents in the quarter due to the sustained demand for office space.
Meanwhile, average capital values appreciated by 2% q-o-q to PHP 93,200 per sqm in 3Q13, slightly faster than rental growth. The positive outlook for the office property market pushed capital values higher during the quarter. In addition, pre-selling office developments in BGC continued to see healthy sales take-up in the quarter. Investment yields fell slightly by 10 bps q-o-q to 10.5%.
More than 250,000 sqm of office supply is expected to come on stream over the next 12 months, with the bulk of it in BGC. This large volume of upcoming supply may lead to higher vacancy rates moving forward. Nonetheless, the growing O&O industry is expected to continue driving demand in the office market. Furthermore, the robust Philippine economy should sustain the growth in rents and capital values in the succeeding quarters.
Note: Manila Office refers to the Makati CBD and Bonifacio Global City Grade A office market.