MAKATI CITY, PHILIPPINES October 5, 2017 – While vacancy rates and construction delivery improve, demand drivers could use more support from the government. These were the main sentiments at the Pronove Tai International Property Consultants’ Q3 Metro Manila Office Market Overview today.
Healthy Vacancy Rates, Finally
“For the first time since 2011, the office market vacancy in Metro Manila registered at a healthy 5% average,” Pronove Tai CEO Monique Pronove reported. “Anything between 5-10% is considered healthy in the industry – sufficient space for businesses to expand within the district.”
Of the office districts, 5 moved out of the unhealthy lower than 5% zone in Q3. These are Taguig City, Mandaluyong and Quezon City at 7%, Muntinlupa at 8%, and Ortigas Center at 5%. Meanwhile, Makati City and Bay Area were still trailing at 2%.
Construction Deliveries Start to Catch Up
This positive development in the vacancy rates could be partly attributed to a marked improvement in construction delivery in Q3. Projects that were delayed from the first half of the year were completed in the months of July to September.
Scheduled construction activities were also kept on track for the most part with only 43,000 sqm or 11% of the projected Q3 completions moved to an early Q4 date. Compare this to Q1 and Q2 delays which were at a high 138,000 sqm (46%) and 160,000 sqm (33%) respectively.
“This positive, though modest, development is definitely a move towards the right direction and could not come at a better timing. Some of these buildings were long overdue and have pre-leased occupants waiting for completion.”
Highest Supply in History
12 new buildings or 331,000 sqm of office space had been completed in Q3 contributing to a total stock of approximately 9.3m sqm as of September 2017 in terms of Gross Leasable Area (GLA). “By the end of the year, we are looking at having a total of 1.2m sqm supply for 2017, making it the highest in the history of the Philippine office market,” said Pronove.
To date, Makati City remained the largest office district in the Philippines at 3.2m sqm followed by Taguig City at 1.9m sqm and Ortigas Center at 1.6m sqm. Bay Area continued to be the fastest growing district at a massive 55% year-on-year growth rate.
3Q Traditionally Slow
In terms of demand, 3Q was a slow period as it traditionally is with ghost month observed during these months. While still the number one demand driver, the IT-BPM sector also displayed a pre-leasing slowdown QoQ. Pronove Tai recorded 52% of pre-leased space in Q1, down to 44% in Q2, and neutral at 44% for Q3. In fact, there were no notable new entrants in the Philippine market for the past three months.
Aside from tax incentives issues that were heavily discussed in the ongoing Tax Reform Package reviews, there were only five (out of 22 building applications) Philippine Economic Zone Authority (PEZA) building proclamations in Metro Manila in the last 14 months. IT-BPM companies occupy office spaces in the PEZA proclaimed buildings to meet their infrastructure as well as incentive requirements. In essence, slow building proclamations mean slow take up from the IT-BPM players.
“PEZA proclamations should be fast tracked. The private sector has already put in the investment, we urge the government to help us now with LONO (Letter of No Objection) for POGOs (Philippine Offshore Gaming Operators) and PEZA buildings for IT-BPM. Or else we’ll have a growing vacancy because I can’t bring all of this demand to all these buildings. It will be a bane to the private investors of newly built buildings to have growing vacancies as a result of not being able to cater to the demand drivers due to government restrictions.”
Time for IT-BPM Upskill
In Tholons International’s Services Globalization Index 2017, China surpassed the Philippines to take the second most preferred investment destination for IT-BPM. China edged the country out of its former ranking due to its more advanced technology.
“Our neighbors in Singapore and HongKong are already experiencing a surge in Artificial Intelligence (AI). However, it will still take time before the Philippines feel the disruption,” Pronove noted.
AI will disrupt industries including Healthcare, Retail, Finance, Manufacturing, Valuation, Transportation and IT-BPM. Pronove advised, “We are still looking at bricks and mortars but it’s definitely the future of our industries and there will be jobs that can be replaced by the technology. It is important that we stay aware of what is happening outside the country.”
As one of the sectors that could be affected by disruptive technology, IT-BPM in the Philippines is urged to upskill and focus on high-value jobs. “In fact, we should all upskill ourselves and focus on jobs where we can add more value than what a robot does.”
For interview request and any further media queries, or for a copy of the full 3Q Metro Manila Office Market Overview, please contact PR & Corporate Communications Manager Agnes Mampusti at +632-8403485/+63919-6848325; email@example.com