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As yields started to harden across most major Asian office markets, Manila's Grade A office market yield declined by 0.68%, currently at 7.40%, according to the latest World Office Yield Spectrum report published by Savills and Deakin University.

However, compared to other cities, Manila's Grade A office yields is still the 6th highest in the world, ahead of several cities including Singapore and Hong Kong. (Figure 1) The list is led by Ho Chi Minh City and Hanoi in Vietnam at 9.36% and 9.0% respectively.

The report also noted that Asian investment markets were mixed over the first half of 2016 due to the uncertainty brought about by Brexit. "Asian investors have continued to display a limited appetite for risk outside their home markets (although Asian outbound capital remains significant) while domestic volumes have been dictated by local market cycles and policy direction. "

"While competition for investment grade property remains a feature of global markets,  a raft of uncertainties continues to unnerve market players in the second half of 2016, including central bank policy direction, Brexit negotiations and the US Presidential election, it is difficult to foresee yields being pushed out in the short term."

Sustained Property Market Boom in PH Possible

While yields may slightly decline as the market corrects itself, KMC Savills, Savills' subsidiary in the Philippines, sees strong office performance and competitive yields in the next six years - as long as PH economic policy and infrastructure reforms are continued.

"The economic agenda for the country prioritizes countryside development, infrastructure and agriculture growth, and increased government spending. Pair this with the administration's goal of positioning the Philippines as one of the top three destinations in Southeast Asia for FDI (foreign direct investment) inflows by 2022, and we see a very positive outlook for the real estate industry," said Michael McCullough, KMC Savills Managing Director, in KMC Savills' recently concluded media roundtable.

Yves Luethi, KMC Savills Vice President for Marketing and Landlord Services, added that the demand for the country's young and talented labor force will also keep PH office market yields competitive.

"The next 10 years is definitely still the BPO story, which is leading the way for commercial office real estate," stated Luethi.

The Savills/Deakin University World Office Yield Spectrum is a unique global publication developed by dozens of researchers in the international Savills team. It is designed to fill a void in market knowledge by providing a standardized set of indicators to help investors make sense of opportunities and risk and return expectations.

The full copy of the report is available here.