Metro Manila Eager for New Office Supply

While high demand for office space remains, the lack of new supply has caused the low take-up during the first quarter of 2015, according to the latest Metro Manila Office Briefing released by Savills associate KMC MAG Group.

"Net take-up of Premium and Grade A office spaces across all central business districts (CBDs) has reached only 36,601 sq m in Q2/2015, hindered by the supply features."

Only two developments slated for completion in Q2/2015 -- One Orion and One Upper McKinley -- were turned over. In the next quarter, Ortigas Center is expecting to see the turnover of the iconic BDO Corporate Center. The rest of the buildings within the pipeline have moved their completion schedule to the second half of 2015 and early 2016.

Despite this, KMC noted that vacancy rate remains low, signaling a healthy market. "As a result of the significant demand and no new supply, the overall vacancy rate remains low at 3.3% in Q2/2015, slightly declining from 3.7% in Q1/2015."

Makati has highest rental rates, QC and Bay Area best-performing submarkets

Makati still quotes the highest rentals among the CBDs, as its current upper net rental rate is now at Php 1,400 per sq m/month. Vacancy rate also remains low at 3.8%. However, prime rental rates in Makati only recorded a modest 2.6% YoY growth to Php 958.6 per sq m/month due to no new supply pulling up rental average.

Quezon City (QC), on the other hand, proved to be one of the best performing submarket with a 1.0% vacancy rate and average rental rate increase by 7.8% YoY to Php 688.1 per sq m/month. QC's performance has attracted more developers, who are now eyeing to develop more projects in the area.

The Bay Area market has again shown a remarkable performance this quarter; it posted the highest rental growth rate among all submarkets at 18.3% YoY, increasing rental rates to Php 655.1 per sq m/month and lowest vacancy rate at only 0.5%.

Meanwhile, Ortigas now enjoys a rental rate growth of 3.7% YoY at Php 609.9 per sq m/month and a slightly lower vacancy rate of 3.5% while Alabang's average rental rate only increased by 0.2% YoY to Php 602.4 per sq m/month.

Other Metro Manila submarkets are also performing well. Construction activity remains robust in Bonifacio Global City (BGC) whose pipeline of one million sq m is expected to double the stack by 2018. BGC's prime rates remain promising at Php 855.0 per sq m/month for average Grade A rentals, increasing by 6.8% YoY. Vacancy also further decreased and is now at 1.3%.

Manila markets still among lowest office rental rates in Asia

Despite the strong performance in rental growth, Metro Manila is still among global cities with the lowest prime office costs, averaging $32.3 (Php 1,477.3) per sq m (inclusive of taxes and management fees), as shown in the latest Prime Benchmark report from Savills. This factor makes the country a strong location for the expansion of multinational companies, coupled with sound macroeconomic conditions and cheap labor costs.

Manila is second only to Kuala Lumpur, which currently has the lowest average rental rate in Asia, at $28.2 (Php 1,289.8) per sq m, including taxes and management fees.