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KMC Savills is pleased to present the latest Office Briefing for 2Q 2017. The report provides current data on rental rates, vacancies, and supply pipeline in Metro Manila's central business districts and submarkets for the quarter.
- A record 264,300 sq m of new office space was completed in 2Q/2017, but the strong occupier demand held vacancies to just 4.2% of total stock. The market's performance has exceeded our initial estimates for 2017 as we saw strong leasing activity in the major submarkets we cover.
- BGC accounted for more than half of the new supply with 140,800 sq m, but the robust demand in the submarket held the vacancy rate low at 3.8%. The Bay Area and Alabang submarkets composed the rest of new supply during the quarter and also retained single-digit vacancy rates.
- However, we have observed declining rental growth in a number of submarkets indicating significant supply pressures. Keeping rents affordable during this massive inflow of completions should sustain the take-up velocity in Metro Manila. We believe a critical factor on the first half's impressive performance is due to landlords' willingness to mitigate rents in order to stay competitive. As such, we should see sustained pressure on rentals until next year as we still expect around 892,100 sq m of new office space in the next 12 months.
- We still see healthy occupier demand from the expanding outsourcing and offshoring market, and we expect it should be able to absorb the building completions in the coming quarters. On the other hand, we should anticipate tempering in rents to facilitate the quick absorption of new stock and keep vacancies at a reasonable level.