Prospects for office space development still rosy

More investors are queuing up for office space in Metro Manila even in buildings that have yet to be completed, indicating rising confidence in the country and a strong underlying demand from businesses, experts from property consulting firm Jones Lang Lasalle said.

These leasing precommitments are now greater than, if not equal to, the number of  companies picking up available office space for lease, JLL Philippine country head David Leechiu said in a recent press briefing.

According to JLL, there is a real underlying demand for office property, noting that investors are becoming so confident in the Philippines that they are willing to commit to lease office space long before the facilities are built.  They are also willing to commit to rent on a long-term basis, it added.

Based on recent deals, investors commit to lease office space for six, 15 or even 30 months ahead of building completion. They are also willing to sign up for seven- to 10-year leases compared to the usual tenor of three to five years.

Given these, JLL officials  are shrugging off concerns about a potential bubble in the sector.

“Precommitments are wiping out the vacancies in the pipeline, which means there is more stability in rent,” Leechiu said. “It looks like rent will continue to rise and that demand will grow if not equal the level a year ago.”

JLL estimates total vacancy across all business districts at 4 percent.

Given such huge interest in office property leasing, Leechiu said JLL had no time for anything else but closing deals.

“We’re optimistic about 2014,” said Lizanne Tan, JLL national director, noting that office space precommitments this year had doubled compared to year-ago level. “The BPO (business process outsourcing) industry is continuing to grow and expand,” she said.

“We don’t see rental rates softening anytime soon especially in Makati, Bonifacio and Quezon City which are the preferred locations of tenants,” Tan said.

“Precommitment means there is demand for future space. It indicates that companies are positioning themselves early to ensure best quality of space,” said Lylah Fronda-Ledonio, JLL associate director.

For 2014, about 735,000 square meters of office space are expected to be added to existing supply as some developments originally meant to be finished by 2013 slipped to next year but most of which are precommitted.