Manila: Office

Demand

Sustained office demand in Makati CBD and Bonifacio Global City (BGC) in 1Q14 was supported by stable leasing activity, particularly from the offshoring and outsourcing (O&O) sector. Meanwhile, other notable sources of demand for office space included the information technology, multimedia, advertising and insurance sectors.

Net absorption nearly tripled q-o-q, from 39,700 sqm in 4Q13 to 117,900 sqm in 1Q14, on the back of healthy take-up at select newly completed buildings, such as RCBC Savings Bank Corporate Center, 8 Campus Place Tower 3 (Wells Fargo Center) and SM Aura Premier. Consequently, the average vacancy rate declined to 4.4%. Other notable office developments that exhibited high occupancy levels in the quarter were RCBC Plaza and GT Tower.

Key lease transactions in 1Q14 included a software firm and an O&O firm leasing 6,500 sqm and 3,900 sqm, respectively, in Ecotower in BGC and an insurance firm renewing its lease contract for 7,100 sqm in LKG Tower.

Supply

In 1Q14, five new office developments completed, namely 11th Corporate Center, SM Aura Premier, RCBC Savings Bank Corporate Center, V Corporate Center and 8 Campus Place Tower 3 (Wells Fargo Center). These developments added a total of 115,000 sqm to the existing stock of office space.

Office developments expected to complete in the succeeding quarter include the Venice Corporate Tower by Megaworld Corporation and the Panorama Tower by Panorama Development Corporation. The two office developments will rise in McKinley Hill and BGC, respectively, collectively adding around 26,900 sqm of office space.

Asset Performance

Robust office demand and sustained healthy leasing activity increased average rents by 1.4% q-o-q to PHP 10,027 per sqm per annum in 1Q14.

Similarly, average capital values posted positive growth in 1Q14, albeit at a faster pace of 3.1% q-o-q, to reach PHP 101,022 per sqm. Meanwhile, investment yields fell by 20 bps q-o-q to 9.9%.

12-Month Outlook

Eleven office developments adding 233,500 sqm of office space are expected to complete in the remaining quarters of 2014, with the majority located in BGC. As such, the expected large volume of incoming office space may cause vacancy rates to increase by end-2014. Nonetheless, sustained demand from a variety of industries is forecast to support the local office property market. This together with positive investor sentiment may support the continued growth of both rents and capital values in 2014.

Note: Manila Office refers to the Makati CBD and Bonifacio Global City Grade A office market.