Office property rental rates in Metro Manila may grow at a slower pace this year through 2022 on the back of headwinds arising from tax reform jitters alongside regulatory issues on Philippine offshore gaming operators (Pogos), property consulting firm Colliers Philippines.
In a research note written by Colliers Philippines senior manager Joey Roi Bondoc and director Dom Frederick Andaya, traditional and Pogo firms were still seen to be the key driver of new office space absorption over the next 12 months.
“We see tax reform uncertainty affecting the expansion plans of outsourcing firms while regulatory issues continue to cast a doubt on the sustainability of Pogos,” the research said.
Colliers said it expected delivery of about 1.02 million square meters of new office space each year from 2020 to 2022. About 56 percent of the new supply will come to the Bay Area, Fort Bonifacio and Ortigas.Thus, the firm sees rental growth softening to 5.6 percent annually through 2022.
“While this is slower than our previous forecast of 6 percent, this is still one of the highest rental growth rates in Asia during the period,” Colliers said.
For 2020 alone, Colliers said average office rental rate in the metropolis would rise by 5.8 percent to P1,083 a square meter a month. Average rental rate through 2022 was seen at P1,195 a sqm a month.
Despite the headwinds, Colliers expects demand from offshore gaming, outsourcing and traditional firms keeping vacancy rates manageable at 5.3 percent this year and averaging 6 percent for 2020-2022.
Despite the completion of 227,000 sqm of new supply in the fourth quarter of 2019, Colliers reported that Metro Manila saw an office vacancy rate of only 4.3 percent during the quarter, lower than 5 percent in the third quarter of 2019. Office space absorption was particularly strong in Quezon City, Bay Area, Alabang and Other Areas-Metro Manila South, the research said.
In 2019, an estimated 93 percent of office deals in the Bay Area were covered by Pogo and outsourcing firms. Colliers expects these segments to sustain leasing transactions in the business district in the next 12 months.
“We recorded a higher vacancy in Makati fringe as some Pogo firms deferred plans to take up space following the Makati City government’s moratorium on the issuance of new Pogo permits,” Colliers said.
Makati announced last December an indefinite suspension on the issuance of new business licenses and permits to Pogo service providers.
“In the next 12 months, we see these firms occupying space in other areas that are accommodating to Pogo operations and where adequate office supply is likely to become available, such as Alabang and Ortigas CBD (central business district) and its fringe area,” it added.
Colliers encouraged landlords with sufficient space—Philippine Economic Zone Authority-proclaimed or otherwise—to engage tenants proactively and offer flexible lease rates.
“Developers planning to raise funds to develop or refurbish office towers should consider real estate investment trust opportunities. Meanwhile, cost-sensitive, outsourcing and traditional firms should spread their costs by relocating some of their operations to buildings outside of major business hubs,” Colliers said. —Doris Dumlao-Abadilla INQ