Good year ahead seen for property sector

View of Makati City at night, where many call centers are located. The Philippine property market is headed for another good year in 2013, with urban land values and rental rates in Metro Manila likely to firm up alongside benign vacancy rates, says property consultant Colliers International. PHOTO BY ARNOLD ALMACEN/INQUIRER

The Philippine property market is headed for another good year this 2013, with urban land values and rental rates in Metro Manila likely to firm up alongside benign vacancy rates, according to property consultant Colliers International.

Colliers International Philippines associate director Julius Guevara said in a briefing that prospects were bright for the residential, office, commercial and hotel/leisure segments in the metropolis over the next 12 months. Demand for industrial estate, a laggard over the years, has also picked up, not from heavy manufacturing players but mostly from logistics and warehouse providers, Guevara said.

Aided by better-than-expected local economic growth and low interest rates, Colliers reported that land values in the Makati central business district (CBD) rose by 5 percent in 2012 to P291,000 a square meter and were likely to increase to P307,000 in the last quarter of this year. However, this will still be lower than the P400,000/sqm valuation in end-1997 before the Asian currency crisis erupted.

The upswing is more pronounced at the Bonifacio Global City, where land values rose 28.1 percent last year to an all-time high P237,000/sqm and were seen to increase to P250,000/sqm by the fourth quarter of 2013.

In the Ortigas CBD, land values increased by 4 percent last year to P134,000/sqm and were seen by Colliers to rise to P139,000/sqm this year.

In the residential segment, Colliers reported that demand for the premium segments remained high in the fourth quarter of 2012, driving vacancy levels below 5 percent over the last three quarters. As vacancy remains low, rental rates are seen to improve by more than 6 percent in Makati CBD this year.

For the office sector, the overall vacancy rate dropped to less than 3 percent mainly driven by the strong demand from the business process outsourcing (BPO) industry.

Average monthly rental rate for commercial office in Makati CBD in end-2012 was estimated at P915/sqm for premium grade office (up 7.6 percent year on year) while rents for Grade A and B buildings increased by an average 5 percent to P735 and P510/sqm a month.

This year, premium office space in the Makati CBD is seen to command an increase of 6-8 percent in monthly rental rate as landlords gain more pricing power resulting from the relatively low vacancy rate.

BGC rental rates, estimated at P740/sqm a month last year, are seen to rise by 4-5 percent this year. In Ortigas, rental rates are forecast to hit P585/sqm this year, up 4.5 percent year on year.

The average vacancy rate in Makati for all grades of office space stood at 3.48 percent in end-2012. In BGC, the vacancy rate ended last year at 3.58 percent, which Colliers expected to increase to more than 5 percent this year with the entry of new supply. In Ortigas, the vacancy rate stood at 2.94 percent last year but is seen to rise to 3-4 percent as new office buildings will be completed by the fourth quarter.

Colliers said it expected total commercial office supply in Metro Manila to reach a total of 7 million sqm by end-2014 from 6.2 million sqm in end-2012. As developers anticipate sustained demand coming from the industry, new supply in 2013 and 2014 would reach record highs of more than 500,000 sqm a year, Colliers said.

“The Philippine commercial office sector is still very competitive,” Guevara said, noting that rental rates were still much lower compared to major cities across the region. Annual rental rate in the Makati CBD is estimated at around $20 a square foot compared to close to $120 in Hong Kong, more than $100 in Tokyo and about $40 in Ho Chi Minh, Shanghai and Mumbai.

On hotel and leisure, Colliers noted that developers have been banking on increasing tourist arrivals to justify new hotel development. In Metro Manila, it estimated that more than 15,000 new rooms would be introduced in a span of four years, half of which would be in the upcoming Entertainment City of Pagcor. But Guevara said rates per room were now expected to soften.