BPOs seen to push CBD office rents up

Business World, 03-13-2014

METRO Manila properties are expected to continue attracting investors this year, with Makati and Ortigas Center office rents seen to reach pre-financial-crisis levels on the back of business process outsourcing (BPO) and a continuing space shortage, a real estate services firm said yesterday.

In its Metro Manila Property Outlook 2014, released yesterday, the KMC MAG Group said the Philippine real estate outlook was "very positive", with the premium and Grade-A office market expected increase rental by 7.0% in 2014. This, the firm, said, will be due to the projected, continued growth of the BPO sector.

"With an uncertain global economic recovery, firms will continue cutting their balance sheets; that will result in an increase of head count in outsourcing destinations, leading to strong demand in Metro Manila," the report read.

"CBD (central business district) rents are likely to reach pre-financial-crisis levels in Makati and Ortigas," it continued, noting that those in Bonifacio Global City (BGC), Taguig, did so last year.

KMC MAG also noted Manila's rise in the annual Tholons ranking of the world's top 100 outsourcing destinations; the capital overtook Mumbai and placed second this year.

"Manila is still positioned as a top outsourcing destination over India, thanks to the country's (Philippines) young, educated English-speaking labor force; affordable labor costs; and taxation benefits for investors via PEZA (Philippine Economic Zone Authority) accreditation," the property firm said.

However, KMC MAG also described a shortage "currently occurring in the market". The firm expects the BPO industry to drive the annual office take-up to 400,000 square meters "in the coming years", but only an additional 320,000 sq. m. of new office space is seen coming this year.

The current office vacancy rate is 4.1%, according to the report, and "there is no space available to facilitate the shortage created by the demand".

The firm also cited this shortage for the rental increase of the past years and noted that prime rents rose to 7.2% last year.

As for the residential market, KMC MAG said value appreciation was "justified" and that "the country still has a lot of potential in the long run, as the urbanization will continue."

The firm expects investors and expatriates to drive demand for high-end apartments while the middle class and its increased purchasing power seeks subdivisions, townhouses, and condominiums.

"Although short-term luxurious residential space investors might experience some pricing pressure, the fact that Manila still has a relatively low price level within the region attracts investors and boosts the currently high figures of sales and take-up," the report read.

KMC MAG also saw foreign investors looking for Philippine joint venture partners for property developments. It cited the $405-million deal last year between Ayala Land, Inc. and the Mitsubishi group to develop a 3.6-hectare mixed-use site in the Ortigas CBD.