Office rents seen easing

Office rental rates are seen to soften this 2016 as new office buildings come into play and start to overshadow demand, property consulting firm Colliers said.

As new supply has started to outpace demand, office property vacancy rates are seen to rise until 2017 but remain within manageable levels. Capital values are also projected to grow in some categories and areas, albeit at a slower pace.

By the third quarter of this year, average rental rate on premium buildings in the Makati central business district is seen to slip by 2.96 percent year-on-year to P1,076-P1,350 per square meter per month.

Monthly grade A and B rents in Makati are likewise seen to decline year-on-year by 2.48 percent and 0.56 percent, respectively, to P698-P1,067 and P569-P807 per square meter.

“The demand has been constant so far but supply is overcoming the demand already,” Colliers Philippines associate director Brian David, Colliers associate director for office services, said in an interview.

But citing feedback from the business process outsourcing (BPO) industry—a key driver of the local property market over the years—David said this industry was not expecting any slowdown.  In fact, he said big new BPO entrants were still coming to the Philippine market, banking on economic stability and the country’s educated and English-speaking workforce.

“The only difference is that developers are building more compared to 2014 and 2015. That’s why we’re expecting a slowdown at some point,” David said.

Colliers’ latest research suggested that the strong leasing activity experienced throughout most of 2015 would taper as the huge influx of new supply could increase vacancies.

The Makati vacancy rate is expected to rise to 4.4 percent by end-2016 from an average of 4.06 percent at end-2015. Vacancies in Fort Bonifacio—where 43 percent of the new stock for the year will be located—are seen to rise to 10.8 percent.

“We’re still at a good stage from 2012 till now. The vacancy rate is below 5 percent for the whole property market.  It will increase because of new supply to 6-7 percent but this is still a manageable range,” David said.

Some developers had been closing leasing deals for new buildings in the fringe areas with net effective rents that were significantly lower than their headline rates and likewise cutting on common area chargers, based on Colliers data.

“This is likely due to the developers’ recognition of the high levels of upcoming supply in the next couple of years, and they would rather put contracts in place at lower rates today than risk having their spaces vacant for an extended period of time,” the latest Colliers research said.