The local property sector is nowhere near any bubble with residential and office rental rates and their property values in Metro Manila’s major central business districts (CBDs) are still likely to rise within the next 12 months on buoyant demand, property experts from Colliers International said.
In a briefing on Friday, Colliers Philippines associate director Julius Guevara said 5,900 additional residential units were likely to be completed each year, bringing the residential stock in major CBDs to 64,000 units by end-2014, 38 percent higher than the level in end-2011.
However, he noted that product launches and take-up were closely tracking each other, noting that the real estate industry was underpinned by the country’s strong economic growth, overseas Filipino remittances, record-low interest rates, prudent real estate exposure of banks and the growth in offshoring and outsourcing industry.
While the property was inherently cyclical, Guevara said in an interview that there were ways to avoid forming a bubble. Apart from closely monitoring market trends, he said the strategy of pre-selling a critical mass before starting construction was a big help to developers. “It’s less speculative if they do it based on demand,” he said.
“Not all cycles end in bubbles,” said Colliers Philippines managing director David Young, noting that at the moment, property supply and demand were moving in the same trajectory. He said there was no cause for alarm “unless we see a significant surge in construction levels where suddenly demand is not there to fill that space up.”
At present, implied land values are still rising. Based on Colliers’ research, land values in Makati CBD have increased by 5.8 percent in the second quarter year-on-year while values in Ortigas have risen by 5 percent. But Bonifacio Global City posted the biggest year-on-year increase at 19.3 percent.
By the second quarter of 2013, Colliers projected that land values would exceed P300,000 a square meter in the Makati CBD and P200,000 in Ortigas. Specifically, land values were forecast to hit P303,009 in Makati, P225,000 in BGC and P136,014 in Ortigas.
As of end-June this year, per square meter land values averaged P284,635 in Makati CBD, P192,574 in BGC and P131,427 in Ortigas. On a quarter-on-quarter basis, these figures were higher by 0.2 percent, 1.4 percent and 0.5 percent, respectively.
For grade-A residential units, rental rates in Rockwell, estimated at P675 to P900 a square meter, was seen to grow by 4 percent over the next 12 months. In BGC, the rental rate is seen to rise by 6 percent from P560 to P830 over the same period, and in Ortigas, by 5 percent from P270 to P460.
In terms of vacancy rates, Ortigas has the highest at 13.5 percent, followed by Makati CBD at 11.71 percent and BGC at 9.06 percent. Rockwell has the lowest at 3.4 percent, based on Colliers research.
The large supply of studio and one-bedroom units, a segment most associated with Grade-A and -B buildings, has contributed to the relatively high level of vacancies since last year, based on the research.
For office property, Colliers estimated that Metro Manila’s total office stock as of 2011 was 6 million sqm (net usable area). Makati’s share fell from 75 percent in the 1990s to just 48 percent at end-2011. This share might decline to 40 percent in the span of two years, Guevara said.
Office property inventory is expected to exceed 7 million sqm (net usable area) by end-2013, substantially driven by BPO offices. About 40 percent of the new supply would come from BGC, the research said.
In terms of vacancy rate, Makati CBD has a vacancy rate of 3.99 percent in the second quarter compared with BGC’s 3.95 percent and Ortigas’ 3.22 percent.
Colliers expects rental rates in Makati to rise by 4-6 percent in the next 12 months. At present, rental rates are at P840-P950/sqm for premium units, P550 to P900 for Grade-A units and P465-P530 for Grade-B units.
In BGC, the office rental rate is seen to grow by 3-5 percent in the next 12 months. Grade-A rental is now priced at P660-P790 and Grade-B at P450-P600/sqm in BGC.
For Ortigas, Collier projected a 4-6 percent growth in rental rates from P440 to P665/sqm for Grade-A and P360-P500 range for Grade-B units at present.