Metro Manila Office Demand High but Slower Rental Growth in 2016

Office stock remains as the most wanted asset by investors and BPOs according to the Savills associate KMC MAG Group's Metro Manila Office Briefing 1Q/2016; however, a more modest pace of overall rental growth is expected in the coming months due to the entrance of a massive amount of supply in the market.

According to the report, "nearly 120,000 sq m of new office spaces entered the Metro Manila office market in 1Q/2016." with Quezon City receiving 75% of the supply.

Despite this increase, the first quarter of 2016 showed positive net take-up, which supported rental increase across all major submarkets including Ortigas Center. The CBD "outperformed other districts with average rental rates increasing 1.4% QoQ and 5.5% YoY."

"Sustained demand arising from the entry and expansion of outsourcing and offshoring companies led to the positive net take-up for Grade A office spaces in Metro Manila with net absorption during the first three months of the year reaching more than 90,000 sq m."

"Overall vacancy levels in major submarkets decreased with the exception of Makati CBD and Quezon City."

More choices for firms, locators

From 2016-2019, there are 1,930,724 sq m of office development in the pipeline in Bonifacio Global City alone, while in Makati, projected total will be 1,155,419 sq m by 2019.

Emerging central business district Bay Area, on the other hand, will have 685,416 sq m of additional space while other submarkets Quezon City, Makati Fringe, C5 Corrridor and Mckinley are each expected to provide almost 400,000 to 600,000 sq m of new developments -- all from 2016 to 2019.

"In the next few years, downward pressure on rental rates are likely to persist as record high levels of upcoming supply are expected to enter the market." 

"With the surge in new office spaces, landlords are seen to become more flexible in lease negotiations, aiming to retain existing tenants and attract new locators," the report said.

You may download the Office Briefing here.