Business Optimism to Fuel Real Estate Growth

Business Mirror, 09-06-2013

The optimism of local and foreign investors on the country's economic expansion up to 2014 is expected to fuel the continued growth of the real-estate sector in the second half of 2013.

In its Metro Manila Real Estate Midyear Report, the KMC MAG Group Research said an additional 340,000 square meters of new office spaces and some 30,000 residential units would be made available by the end of 2013. The country's macroeconomic performance continued to be impressive, albeit at a slower pace, in the second quarter. The second-quarter gross domestic product growth was at 7.5 percent, slower than the 7.7 percent posted in the first quarter.

The KMC MAG Group Research said the country's economic growth is expected to remain fast, based on expectations of the International Monetary Fund (IMF). The IMF recently raised its forecast for the Philippines to 7 percent from 6 percent in 2013, and to 6 percent from 5.5 percent in 2014. "The property market in the Philippines will sustain its current performance. The second half of 2013 will be quite similar to the first six months, only with added supply," KMC MAG Group Research Managing Director Michael McCullough said.

The growth of the local office market is boosted by the business-process outsourcing (BPO) sector. The KMC MAG Group Research believes there will be "no shortage of tenants" even in prime areas such as the three main commercial business districts (CBDs) -Makati City, Bonifacio Global City (BGC) and Ortigas Center. This, the think tank said, is boosted by the introduction of new office spaces within the CBDs of around 340,000 sq. m. The KMC MAG Group Research said most of these new office spaces will be located in BGC.

At present, Makati CBD has around 1.1 million sq m of premium and "Grade A" office spaces. The number will increase by 70,000 sq m by the end of the year. This will include the Alphaland Tower and V Tower. The average asking rental rates for premium spaces in the Makati CBD has reached P1,027 per sqm with a maximum rate of P1,200. Grade A rates average is P733 per sq m, with a maximum rate of P950, while Grade B reached P543 to P750 per sq m. "The rates are backed up by strong demand since vacancy rates in the prime buildings continued at a level of 3.9 percent. However, this rate is forecast to increase to 7.2 percent once the new supply is delivered, according to KMC MAG Group's database," the report added.

In BGC, the group said, there are 140,000 sq m of office developments in the pipeline for 2013. These include new buildings such as the Ecotower with 33,000 sq m; W Fifth Avenue, 33,000 sq m; RCBC Savings Bank Corporate Center, 38,000 sq m; and SM Aura, which will open a 38,000-sq-m office tower by the turn of the year.

The report stated that the annual increase in supply of prime buildings for 2012 was recorded at 90,000 sq m, increasing the total stock of BGC to 650,000 sq m. The average asking rental rates for Grade A buildings amounted to P708 per sq m, with a maximum of P1,000 per sq m. Due to the numerous developments and annual increase of supply within the area, the group believes vacancy rate increased to 9.7 percent and will remain high by the end of 2013.

In Ortigas the report said there are around 450,000 sq m of Grade A office spaces as of mid-2013. This is estimated to increase by 100,000 sq m by the end of the year once the Robinsons Cyberscape Alpha and Beta are completed. The average rental rate for office spaces in Grade A buildings in Ortigas is at P518 per sq m, with a maximum rate of P750 per sq m. Office space rentals in Grade B buildings average P497 per sq m to as much as P700 per sq m. "Vacancy rate remains low at 3.6 percent but is expected to increase given the new supply of office spaces to be completed in the current year," the group said.

In the residential aspect, BPOs and low interest rates are fueling its growth. The group said the average growth of prime rental rates pegged at 6.6 percent a year.