Office space vacancies seen to spike next year

Vacancy in Cebu’s office market is seen to spike next year as new supply comes in, a real estate consulting firm said.

In its third quarter report on Cebu's office sector, KMC MAG Group noted vacancies are expected to spike again next quarter as an additional 100,100 sq m of new gross leasable area (GLA) is expected to be completed.

The Cebu Business Park, the city’s main business district, is anticipated to add three more buildings next quarter - totalling to 42,700 sq m of GLA.

"Despite the submarket's impressive performance this quarter, the vacancy rate is expected to rebound to around 8.0 percent by the end of the year," the consulting firm said in the report.

The Cebu office market recovered in the third quarter this year after the Cebu Business Park experienced a stark decline in vacancies.

There were no new additions to supply during the quarter and net absorption further strengthened to 22,314 sq m.

Conditions in the Cebu Fringe - which refers to office spaces outside Cebu's main business districts such as IT Park and Cebu Business Park - were relatively unchanged with the vacancy rate maintained at 17.1 percent.

"However, among the townships in the Fringe, we observed significant leasing activity in Mactan Newtown," said KMC, a local affiliate of Londonbased property consultant Savills.

With market conditions tightening in Cebu Business Park, rents recovered modestly from the negative growth posted last quarter.

In addition, the very low vacancy rate in Cebu IT Park was sustained causing rentals to further improve, it also noted.

Average rents in the offshoring and outsourcing hub rose to Php 584.9 / sq m per month after posting a strong 4.8 percent YoY growth.

The business process outsourcing (BPO) sector is expected to continue to drive the demand in the office market.

The outsourcing sector is still expected to drive demand, but KMC had also observed that nonoutsourcing players have entered certain submarkets which have started diversifying Cebu’s sources of demand.

Cebu is one of the Philippines' growing central business districts (CBDs) and is host to various BPO companies with its low rental rates, consistently growing economy and large pool of talent.

Cebu's real estate sector is benefiting from the investors' positive sentiment, as local players implement their massive capital expenditure plans to cover new launches and ongoing developments in the city.

The Cebu office market follows the national trend where the BPO industry heavily drives the market.

At present, there are more than 120,000 employees in the Cebu BPO industry or approximately 10 percent of the total BPO employees in the country.

The Philippine BPO industry grew by an annual average of 20 percent in the past decade. In the next five years, industry experts are forecasting a growth range between 12 percent to 18 percent.

Nationwide, the BPO industry still accounted for the largest share in demand for the office market. —

Lorenciana

Carlo S.