Metro Manila Office Market Overview 2018 & Outlook 2019: Strong Performance, Steady Growth

Office Market Overview

MAKATI CITY, PHILIPPINES  January 11, 2019 – “Coming from one of the strongest office market performances in 2018, we are cautiously optimistic that 2019 will be another healthy year for the industry,” Pronove Tai International Property Consultants’ CEO, Monique Pronove said at their media briefing on Wednesday.

“I always say that the biggest beneficiary of a good economy is the property market. In 2018, while the country’s Gross Domestic Product (GDP) growth 6.4% was below the forecast of 6.7% as at Q3 2018, the Philippines was still the third fastest growing economy in Asia,” Pronove pointed out.

Highest Recorded Take Up in History

2018 saw the completion of 32 new buildings or 845,000 sqm supply, growing the stock by 9% YoY. Of the 10.6m sqm total stock as at December 31, 2018, Makati City remained the largest office district at 32% or 3.4m sqm share, followed by Taguig City at 21% and Ortigas Center at 16%.

“Taguig City delivered the highest supply in the last four years at an annual average of 280,000 sqm. Taguig City is certainly inching its way closer to Makati as it continues to build more,” Pronove said.

In terms of demand, actual transactions in 2018 grew by 22% YoY, from 875,000 sqm in 2017 to 1.1m sqm – the highest recorded take up in Philippine history. “ITBPM had a resurgence in 2018 accounting for 46% of the demand share,” Pronove said. The office market’s top demand driver came back with increased leasing transactions of 490,000 sqm compared to just 378,000 sqm in 2017.

Traditional Offices had a strong showing as well at 312,000 sqm, a 67% jump from 2017 transactions. Philippine Offshore Gaming Operators (POGO) came in third at 229,000 sqm, a slight decrease from the demand in 2017 due to lack of space in their preferred locations. Flexible workspaces became the fourth demand driver registering a significant growth of 258% YoY coming from 10,000 sqm in 2017 to 37,000 sqm in 2018.

Low Vacancy

The strong demand translated to an overall unhealthy vacancy level of 4% in the metro. In fact, of the seven office districts, only Taguig City at 7% had a considerably healthy vacancy level (5-7%). Muntinlupa City logged 3% vacancy, and 1% for both Makati City and Ortigas Center. The Bay Area recorded the tightest vacancy at 0.4% due to strong POGO take up.

Meanwhile, Quezon City and Mandaluyong City continued to register high vacancy at 13% and 10%, respectively.

Quezon City – High Vacancy and High Supply

“We would like to draw attention to Quezon City which ended 2018 with the highest vacancy,” Pronove added. “In 2019, Quezon City is slated to deliver the highest supply of 343,000 sqm of new office buildings developed largely by SM, Ayala, Eton, and Araneta Group. As such, we see rents and capital values in the district to be pressured.”

Double Digit Rental Growth for the Bay Area

 On the other hand, Bay Area accounted for the best performing rental growth in 2018. It was the only Metro Manila business district that posted a double digit rental growth at 19% YoY; the cities of Taguig and Makati registered 7% and 8%, respectively.

“Bay Area developers were a case of being at the right place, at the right time, opening up to POGO quickly,” Pronove said.

Positive Outlook for 2019

45 new buildings or 1.04m sqm supply are expected to be completed this year. 25% or 264,000 sqm of which had already been pre-leased as at December 2018. POGOs led the way in pre-leasing, taking up 45% of pre-leased space followed by ITBPM at 36%, and Traditional Offices at 19%.

To date, only eight out of the 45 buildings are PEZA-proclaimed. “There were only 6 IT Centers and Parks proclaimed in 2018, a measly number compared to 2017’s 26. This could slow down the absorption of the office spaces and we hope the proclamations will be sped up this year.”

“While we are positive on the year ahead, we encourage our clients to diversify their tenancy mix and consider competitive pricing especially in districts with high vacancy,” Pronove concluded.