Office vacancy rates seen to hit 10-12%
DEVELOPERS are bringing to the market a record amount of new office supply this year, which may push vacancy rates to double-digit levels, real estate consultant Santos Knight Frank said.
More than 1.4 million square meters (sq.m.) of leasable office space are expected to be added to the current supply this year compared to the 800,000 sq.m. that went online in the previous year, Morgan McGilvray, Santos Knight Frank senior director for tenant representation, said in a briefing on Tuesday.
Vacancy rates, which have remained at the single- digit mark since 2010, may climb to 10-12% — a level still considered “quite healthy” based on global standards, Mr. McGilvray said.
In the last quarter of 2017, vacancy rates decreased to 4.33%, from 4.66% in the previous quarter.
Lease rates will stay neutral or grow at a slower pace in the next couple of years compared to the 5-6% year-on-year expansion seen in the previous years until the take-up can match the new supply, Mr. McGilvray said.
“Last year was a year of uncertainty and transition. This year will be a year of stability and growth,” Santos Knight Frank Chairman and CEO Rick M. Santos said.
Office take- up or net absorption for the entire 2017 reached about 675,000 sq. m., still up 25% from the previous year when uncertainty brought about by Philippine President Rodrigo R. Duterte’s anti-West outbursts and United States President Donald Trump’s “America First” policy weighed on the market.
The delay in the approval for applications for incentives offered by the Philippine Economic Zone Authority ( PEZA) also affected take- up of new supply.
“BPO ( business process outsourcing) firms assure no significant changes in operations as they will continue to vigilantly watch for changes in law that would negatively impact their business, just as they have done in every past administration,” Mr. Santos said.
Likewise, the Philippines will continue to reap the dividends from the improved relations with China, which has led to investments in BPOs and gaming companies, said Jan Paul D. Custodio, Santos Knight Frank senior director of research and consultancy.
Chinese groups expressed interest in making real estate investments through acquisition of residential condominium units in bulk or partnering with local companies to undertake projects such as buildings, schools, hospitals and smaller infrastructure projects, Mr. Custodio added.
The Philippine government’s “Build, Build, Build” program will significantly benefit from China’s “Belt and Road” Initiative, with Beijing seeing opportunity in Manila’s population demographics, rising income and urbanization trends.
Meanwhile, the growth in retail development, expected to add 560,000 sq. m. of leasable space until 2019, will fuel demand for logistics property, as the booming traditional retail and e-commerce sector drive the need for warehousing and distribution centers near urban areas, said Kash Aristotle B. Salvador, Santos Knight Frank associate director for investment and capital markets.
The huge demand from inbound and local tourists will also trigger an influx of hotels and resorts to the Philippines, with more than 3,000 hotel rooms anticipated to open this year in the Bay Area, Makati and Bonifacio Global City.
The Philippines remains as a leading real estate market in the region anchored on sound macroeconomic fundamentals, talented labor pool, and a growing middle class that will set the country apart from other Asian markets, Mr. Santos said.