Metro Manila’s office property market performed better than expected in the second quarter, keeping average vacancy rate to only 4.2 percent of total stock, property consulting firm KMC Savills said.
In its second quarter report, KMC Savills said 264,300 square meters (sq m) of newly built office spaces entered the market, a record high for a quarter. Still, strong leasing activity in the major submarkets of Makati, BGC, Ortigas, Alabang, Quezon City and Bay Area was noted to have tempered overall office vacancy rate.
BGC accounted for more than half of the new supplies with 140,800 sq m, but the robust demand in this submarket held the vacancy rate low for grade A offices at 3.8 percent of total stock, the report said.
The Bay Area and Alabang submarkets accounted for the rest of the supplies during the quarter, likewise retaining single-digit vacancy rates of 3.7 percent and 5.3 percent, respectively.
However, KMC Savills reported declining rental growth in a number of submarkets, indicating significant supply pressures.
The firm said keeping rents low would help sustain customers’ interest in the properties.
“We believe a critical factor on the first half’s impressive performance is due to landlords’ willingness to mitigate rents in order to stay competitive. As such, we should see sustained pressure on rentals until next year as we still expect around 892,100 sq m of new office space in the next 12 months,” it said.
KMC Savills also sees sustained demand from the expanding outsourcing and offshoring market filling new space in the coming quarters.
In the Makati submarket, KMC Savills reported that with Insular Life Makati Building coming online, grade A office vacancy rate hit 3.1 percent of total stock in the second quarter. “Moreover, tenants have begun consolidating their operations in BGC which has slowly placed extra slack in the Makati CBD (central business district),” the report said.
Rental rates in Makati posted a healthy 3.3-percent year-on-year growth, supported by the historically low vacancies. Makati CBD still commands the highest monthly average rent of P1,038.10 per sq m.
“Vacancies are expected to remain low in the following quarters, but the increasing availability should offer opportunities to potential tenants planning to locate in the financial district. Furthermore, we still see rents to maintain its current growth trajectory as the vacancy rate is forecasted to remain in the low single-digits by end-2018,” the report said.
KMC Savills also reported strong rental performance in BGC despite the extraordinary influx of new supplies, with rents growing by 3.5 percent year-on-year.
Although the firm estimates 186,500 sq m of new office stock coming to BGC by the end of the year, the better-than-expected net take-up is projected to continue and keep the vacancy rate in single digits. Still, the new supply is seen to put pressure on rental performance in the coming months.
In Ortigas, vacancy rate was at 1.2 percent of total Grade A office stock. Monthly rental rates grew by 3.1 percent year-on-year to P658.50 per sq m. Vacancy rate in this area is still expected to remain low with just 63,700 sq m of new office stock coming in in the next 12 months.
In Alabang, rental growth was seen healthy at 2.6 percent year-on-year in the second quarter albeit slower than the 3.1 percent year-on-year increase in the first quarter. Among the submarkets, monthly rent in Alabang is still the lowest with an average P630.60 per sq m. Vacancy rate was projected to fall below 5 percent with no new supplies coming in.
In Quezon City, vacancy rate was still high at 10.7 percent despite the lack of additional supplies. Rental rate grew by a meager 0.6 percent year-on-year.
In the Bay area, demand was still strong as the market absorbed more than half of the new stock. Average rent is at P712.80 per sq m per month.