Office space segment to fuel property growth

MANILA, Philippines–Office property is the most attractive investment segment in the Philippine property asset class and will likely remain on this sweet spot in the next three to five years, according to real estate consulting firm KMC MAG Group.

Michael McCullough, KMC MAG Group managing director, said in a briefing last Friday that the outlook for the local property sector remained rosy, supported by a low interest rate environment, monetary easing by major central banks outside the United States and favorable feedback from investors.

Office property, McCullough said, remained the “most wanted” investment class in Philippine real estate as strong demand from the outsourcing industry continued to power the upswing for the market, in turn encouraging developers to create more inventory. For this year alone, about 560,000 square meters of new office space is expected to be built across the major central business districts, nearly half of which will be located in Bonifacio Global City.

Apart from buying for their own use, demand for office property is driven by investors, many of whom are diversifying from the residential segment. This has prompted the development of more office condominium properties meant for sale than for lease.

Gerold Fernando, associate director at KMC MAG, said that aside from diversifying, investors were getting better yields in office property investing. While the yield for the residential segment is steady, yield in the office segment was still increasing alongside rising capital values, Fernando.

“And when you lease out office (space), it’s for a minimum of three years. You don’t have to fix it up. You don’t have to hire an interior designer to make it pretty or furnish it just for you to rent it out at P900 per square meter. On the office side, even if it’s all concrete, you don’t even have to buy air conditioning, you can lease it out at P850 to P900/sqm also,” Fernando said in an interview at the sidelines of the briefing.

For units that are being offered through selling, one has to spend P100,000 to as much as P170,000/sqm to buy a basic residential unit.

“But for office, even for bare space, it’s cheaper to invest. You get better yield and less headache because you’re dealing with a company (tenant) than an individual,” Fernando said.

“It’s safe to say that the next three to five years will still be a good spot for the office sector. I don’t think that rental rates will be slowing down. It’s been increasing for the last five years and will still increase in the next five years,” he added.

Fernando said he expected rental rates in the office sector to grow at a compounded 7 percent over the next five years.