The Philippine office property market saw a strong performance in 2017, but it could have been better had there been increased government support on two demand drivers, according to Pronove Tai International Property Consultants.
This wholly Filipino owned property services firm was referring to the IT-business process management (IT-BPM) firms and Philippine Offshore Gaming Operators (POGO).
Pre-leasing activities
“While we noticed a slowdown in IT-BPM take up, POGOs buoyed us over in 2017,” Pronove Tai CEO Monique Pronove said in a statement.
Data from the firm showed that in 2017 pre-leasing, 41 percent or 316,000 sqm came from IT-BPM companies. Offshore gaming was a strong second at 35 percent or 275,000 sqm.
“POGO had a strong take up despite being only allowed in Makati and Pasay. If not for this sector, vacancy rates would have gone up to 8 percent in Metro Manila,” Pronove added.
Limited growth
These two demand drivers’ take up could have been stronger in 2017 if not for lack of government support that caused a wait-and-see attitude among the players, who have earlier expressed their concern on certain issues.
These issues include the threat of revocation of value added tax (VAT) exemption in accordance to the 1997 Tax Code for IT-BPM; slow Presidential proclamations for Philippine Economic Zone Authority-accredited buildings; unclear initial licensing authority for POGOs; and that there are currently only two cities that have issued a Letter of No Objection (LONO) for offshore gaming operators.
Pronove pointed out that the POGO sector’s growth is limited to the cities that have issued the letters of no objection. The local governments, specifically of Quezon City, Mandaluyong, and Taguig, should consider allowing POGOs within their cities.
“These cities have the highest vacancy rates. Once LONOs are given to POGOs in these areas, there will be better opportunities for the sector to further grow,” Pronove explained.
Meanwhile, proclamations of PEZA IT parks and buildings were slow in 2017, with an average of six months turnaround time nationwide. There are, in fact some P42 billion worth of PEZA applications in 2017 whose approvals remained pending, Pronove disclosed.
Cautiously optimistic
Nevertheless, 2017 was still a positive year for the Philippine office property market, according to Pronove. Given the sector’s performance last year, Pronove thus proclaimed that they are “cautiously optimistic that 2018 will be a strong year for the industry as well.”
Data from Pronove Tai showed that with a 100-percent delivery rate, 46 new buildings or 1.2 million sqm leasable office space had been added to the 2017 existing stock.
“This is the highest supply in Philippine history and is a marked improvement from last year’s delays delivering only 49 percent,” Pronove added.
Makati City remained the largest office district with 3.3 million sqm out of the 9.7 million sqm total office stock recorded as of end December 2017. At 1.9 million sqm, Taguig City was the second largest office district, overtaking Ortigas Center (1.6 million sqm).
Meanwhile, Taguig City also contributed the biggest volume (432,000 sqm) to the total office space supply in 2017. In terms of growth, the Bay Area remained the fastest growing office district, accounting for 55 percent or 268,000 sqm of the new supply last year, Pronove said.
Highest vacancy
According to the property services firm, 2017 also saw Metro Manila office vacancy levels rising to a healthy 5 percent for the first time in seven years.
“This can be attributed to acceleration of construction as well as completion of long overdue buildings from previous years. Having said that, Makati City still has very low vacancy rate at 3 percent. This is tight and uncomfortable for businesses to grow within the same building or even within the city,” Pronove explained.
Quezon City has the highest vacancy rate at 11 percent, followed by Mandaluyong at 8 percent, and Taguig City at 7 percent.
Rental rates
In terms of office rental rates, Makati remained the most expensive in the country at P1,460 per sqm a month, while Taguig City recorded the highest rental growth in Metro Manila at 26 percent.
As of end December 2017, Makati’s rental rate had a 23 percent premium over Taguig.
“Again, this could have gone higher were it not for the stumbling blocks I mentioned. This would then encourage decentralization of economic activity to other more affordable cities nationwide,” Pronove stressed.
2018 pre-leasing
Based on initial pre-leasing numbers, the office property market may again exhibit strong growth next year.
Pronove disclosed that as of end December 2017, pre-leasing for the 2018 supply was already at a strong 43 percent, equivalent to 354,000 sqm. Compared to the same time last year, pre-leasing for the 2017 supply was at 23 percent or 288,000 sqm.
Of the pre-leased space, traditional office took up 60 percent or 211,000 sqm, while the IT-BPM industry remains a strong demand driver at 143,000 sqm of pre-leased office space.
“This bodes well for the office market showing signs of sustaining its growth in 2017,” Pronove added.