On the back of brisk office asset sales, CBRE Philippines has declared its prediction that offices are the new residential in its Q1 2016 research report.
Fast forward to 2010 when the market had stabilised, Ayala Land and Daiichi properties ventured into pre-selling office developments. Average prices started at PhP 75,000 to PhP 80,000 per sqm for Bonifacio Global City (BGC).
The results were very remarkable as Ayala Land’s first office project launched in BGC through the Alveo brand, High Street South Corporate Tower 1. This project posted record figures with about 95 percent of the units sold within a year of launching. Tower 2 was launched in 2013 and followed with 93 percent of units sold within a year of launching. Turnover is expected in 2017 for both towers.
This was soon followed by its Park Triangle project with the Park Triangle Plaza as the first office building project. It is one of the record-setting launches of Alveo with 82 percent of the total units sold towards the end of Q1 2016. Turnover for the building is expected towards the end of 2018.
Philippine economic development is greatly supported by the growth of real estate sector, the real estate firm said. This is evident in the expansion of the country’s skyline as new office skyscrapers, commercial centres, and residential condominiums populate
Metro Manila and key urban locations in the provinces.
Real estate development initially started to become aggressive in the early 90s. The market welcomed property developers’ scheme of pre-selling their residential developments. Take-up of residential inventories was so high to the point that entire stock is sold prior to the project construction.
In terms of workplace buildings, Megaworld is the first developer that ventured into pre-selling of office units through Petron Megaplaza along Sen. Gil Puyat Avenue and Union Bank Plaza in Ortigas Center. The project launches were a success but when the market succumbed to the Asian Financial Crisis in 1997, the real estate market slowed.
The selling price movements of the Alveo projects have been surprising. Its first projects in High Street South were selling at around PhP 130,000 per sqm back in 2012. By 2014 the Park Triangle project was selling at Php 160,000 per sqm which was further pushed to PhP 170,000 per sqm in early 2015. The current selling price is around PhP 230,000 per sqm.
Not to be outdone is Ayala’s Avida brand with its two office building projects, namely One Park Drive and Capital House. One Park Drive is scheduled for turnover in 2017 and is approximately 97 percent sold while Capital House is set for turnover in 2018 and is around 87 percent sold. Both buildings though are more modestly priced compared to its Alveo counterparts with a selling price at around PhP 170,000 per sqm.
Now average pre-selling prices are at PhP 200,000 per sqm for office projects of the same developers in the same location. The price jump for this segment has been well accepted by the stakeholders. Market movement has been so fast that local and foreign industry players are surprised.
From 2010 price levels to present, average capital value appreciation is estimated at 18 percent in BGC. Office stocks continue to increase in the past six years with all buildings considered as new. Fresh supply of office buildings are expected to be completed in 2015 to 2019 which will further support the development of the area.
Ayala Land, encouraged by the success of its BGC offerings, brought the office pre-selling market activity to Makati City. Alveo Financial Tower, which is slated for completion in 2020, has been launched in the market in mid-2015. Pre-selling prices fetched a high of PhP 240,000 per sqm before year-end 2015. Take-up from the project has been brisk and that signaled the office market’s bull run in Makati City.
Makati City, being the country’s premier business district, and BGC, the popular choice for office occupiers and investors, will likely to continue to experience the surge in both capital values and rents. Demand mainly stems from the continued expansion of the Business Process Outsourcing sector. Likewise, demand for headquarter-type and front offices is also picking up.
Traditionally, office buildings were held by the developers for their source of recurring income. The returns generated were decent but the attraction leaned towards earning long-term cash flows. Office leases normally ranges 2- to 3-years in the short-term and 5-years average lease term for most multinationals. Clients committed to build-to-suit projects and aims for large footprint go for a 10-year lease term.
Compared with most residential lease term which averages from 1- to 2-years, office space seems to give investors the longevity of guaranteed and recurring income.
Overall market continues to be bullish due to the re-development of Makati City and the continued increase in new projects in BGC will further boost capital value and rental growth levels. Building owners are also seen to unload their office buildings to big institutional buyers to realise profits and seek to reinvest again. This trend was noticed in 2012 when the market took a shift.
More investors are interested in this trend as office development are good for recurring income. With high liquidity in the market through fresh foreign capital and local funds, office buildings make up as the good tradeable investment asset.
Commercial real estate in Metro Manila pivots towards the upside as more foreign investors get interested in office buildings as alternative asset to residential.