Office rental rates in Philippines among lowest in Asia-Pacific

The average office rental rate in the Philippines is much cheaper than anywhere else in Asia-Pacific but this segment is very lucrative because brisk demand from business process outsourcing (BPO) is driving growth at a “healthy” pace, experts from global property consulting firm Jones Lang LaSalle said on Wednesday.

Apart from office property, JLL sees bright investment prospects for upper mid-end residential assets or those worth between P15 and P18 million particularly in Bonifacio Global City and Makati, JLL country head David Leechiu said in a briefing.

JLL is also upbeat on investment prospects in budget hotels—referring to two- and three-star accommodations—across the country outside of Makati, Bonifacio Global City and the Manila Bay area as it expects tourism to be the next big thing in terms of Philippine real estate growth.

In the office segment, local rental rates have risen but they are still 33 percent below the peak levels seen in 2007 or before the US-induced global financial crisis erupted. As of the second quarter, average rental rates for Grade A office in Manila amounted to $209 a square meter a year compared to $1,758 in Hong Kong, $683 in Beijing, $504 in New Delhi and $441 in Sydney, based on estimates by JLL.

“Manila is much cheaper than anywhere else,” said Alastair Hughes, Jones Lang LaSalle chief executive officer for Asia Pacific. But such low rental prices should also allow the Philippines to be more competitive in attracting more BPO firms, Hughes said.

This year, Hughes said rental rates in Manila could rise an average 10 percent, which he described as “a good level of sustainable rental growth.”

Average office rental rates in Makati are estimated at between P600 and P900 a square meter a month; in Bonifacio Global City, P600-P800/sq.m.; in Pasig City, P500-P700/sq.m., Quezon City, P400-P600/sq.m., and in Manila Bay area, P500-P550/sq.m.

Leechiu said the most lucrative areas for office investments were still in Bonifacio Global City, Makati and Quezon City. JLL estimated that average annual demand for office property would reach at least 300,000 sq.m. in gross leasable area a year up to 2015. Based on the number of buildings under construction, it projected an office supply deficit of about 200,000 sq.m. by 2015 if demand would go up to 360,000 sq.m.

But outside Metro Manila, he said the opportunities were limited because demand for office space was mostly driven by BPOs that mostly thrive in Metro Manila, which produces the biggest bulk of skilled manpower required by this industry.

Within the metropolis, he said there was very little office space left for rent. “BPOs have wiped them out,” he said. For the first time in three years, he noted there were BPO companies now signing lease contracts ahead of building completion.

“The Philippines has become a part of the anti-crisis solutions of many companies. They’re thinking of cost and to address that cost, [offshoring to the Philippines] is part of the answer,” Leechiu said.

On residential property, Leechiu said upper mid-end residential assets in Bonifacio Global City and Makati would be most promising. On the other hand, he said it was “very dangerous” now to invest in residential mid-market property, noting that there were 15 big property developers out there competing for this market.