Manila’s office market is witnessing rapid expansion according to research from real estate firm Savills.
With the lack of developable land in Makati’s central business district, the other sub-markets are gaining a lot of traction. The main focus remains on Bonifacio Global City (BGC), but increasing interest has been observed in emerging submarkets, especially in Quezon City and Bay Area which are posting strong figures.
This rapid expansion is a result of the strongly performing occupier market which is driven by the IT business process outsourcing (IT-BPO) industry. The IT-BPO sector boosted annual take-up to 430,000 sqm during 2014, and is expected to reach 400,000 sqm this year – with no signs of slowing according to the agency.
While the robust take-up has sustained the rapid growth of rents, the current growth rate of 5.4 percent year-on-year seen during Q2 2015 has slightly slowed from the 7 percent to 10 percent range seen during the past few years.
Reasons for this can be found in supply factors which signal healthy market dynamics. The rather large pipeline has helped restrain rental expectations and improved the occupiers’ position in rental negotiations.
Since a significant share of leasing transactions are still focused on pre-leasing, this has resulted in relatively good terms for tenants with the luxury of time.
Looking ahead, Savills noted the strong economic performance, with growth projections at 6.0 percent to 7.0 percent that is expected to keep the real estate market buoyant across all sectors.
Metro Manila construction activity will remain robust as major developers continue to expand their footprint.
The key trend is the development of large-scale mixed-use township projects which are rising all over Metro Manila. These projects are spreading the commercial focus away from the main CBDs as tenants are looking for more convenient options for their employees. Typically, these townships consist of several office and residential towers, with a retail component, allowing them to be self-sustained communities.
In the office sector, the IT-BPO industry’s presence in the Philippines is expected to remain strong and office demand should remain high, as global firms continue to seek reduced costs through outsourcing their services.
With sustained demand, modest rental growth and a low vacancy rate, the significant office pipeline is expected to be absorbed and yields to remain attractive for core assets over the next few years.
Some headwinds might be felt from the latest economic turbulence but given the strong fundamentals of the Philippine economy, the effect is not expected to be significant.
All in all, Savills said it maintains its bullish outlook for Manila’s office sector with rents and capital values forecast to grow by 5 percent to 7 percent over the next 12 months.
To read the full Manila Office Research Report from Savills click here.
