Cebu office market demand to remain robust this year

Demand in Cebu’s office market is expected to remain robust this year amid projections that vacancy rate could hit double-digit in the coming years, according to property consultancy firm KMC Savills.

In its latest report on Cebu's office sector, the real estate services firm said absorption of office space in Cebu remained healthy.

"The new office buildings are not expected to put too much strain on the submarket as vacancies are forecasted to just rise above 6% of total stock," KMC noted in its report.

“In subsequent years, the vacancy rate may rise to double digits if demand begins to weaken, but given the surprise in 2017, we should expect demand to remain robust," the consulting firm said.

Cebu surpassed expectations as net absorption of office space surged to 67,500 sq m in the fourth quarter of 2017.

"Vacancies dropped in all submarkets which resulted to an overall vacancy rate of 3.8% by the end of 2017," it said.

The Cebu Fringe, its term for office facilities outside Cebu's main business districts, had an impressive run after ending the year with a vacancy rate of 9.4% from 21.3% in fourth quarter of 2016.

"Much of the performance was driven by Mactan Newtown after Tower One Plaza Magellan was fully leased out upon completion," KMC said.

With the notable net absorption, rental growth in Cebu continued to recover following an increase of around 3.4% yearon-year.

It ended the year with an average rental rate of P551.2 per sq m a month.

Rents in the Fringe were also on an uptrend after accelerating 2% year-onyear in fourth quarter last year compared to a decline of -0.7% year-on-year in first quarter that year.

In 2018, Cebu IT Park, which is home to most of business process outsourcing (BPO) companies operating in Cebu, is anticipated to receive more than half of the 131,400 sq m of new supply.

From 2018 to 2021, Cebu will have 274,745 sq m of new office supply, based on the KMC report.

The 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 non-outsourcing 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.

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