DEVELOPERS will be bringing to market at least 900,000 square meters (sq. m.) of new office space annually over the next three years, with offshore gaming firms and business process outsourcing (BPO) companies continuing to drive the market amid easing regulatory concerns.
The estimate was given by real estate consulting services firm Colliers International, which said 2017 saw a record 852,000 sq. m in leasable space coming to market in Metro Manila, 57% higher than the average of 540,000 sq. m. from the preceding three years.
Metro Manila’s office inventory now stands at 9.7 million sq. m.
The rise in office supply is expected to push vacancies to 7% by the end of the year, from 5.3% at the end of 2017. By 2020, Colliers predicts vacancies will further rise to 10%.
“Such a scenario further intensifies competition among developers. With the increase in vacancy, Colliers believes this will ensure continuous upgrades in a more competitive market,” Colliers Senior Manager for Research Randwil Dinbo Macaranas said in the company’s fourth-quarter market report.
The rising vacancy rates will cause rental growth to flatten in the coming years to about 2-5% per year in central business districts (CBDs), according to the company. Rental rates in major CBDs are currently at P800-P1,300 per sq.
Meanwhile, rents in the Ortigas district, parts of Quezon City, and Alabang will be at a discount of at least 30% compared to Makati CBD and Fort Bonifacio.
Among the areas expected to have the largest additions in office space are Fort Bonifacio in Taguig City, the Manila Bay area, and Ortigas. Colliers said 44% of the total supply for 2020 will come from Ortigas alone, with the completion of SM Prime Holdings, Inc.’s SM Mega Tower, and DoubleDragon Properties Corp.’s Jollibee Plaza, among others.
Office developers are taking their lead from strong demand from gaming firms locating in the country, which Colliers attributed to the crackdown on such firms in other countries, prompting them to relocate elsewhere. This has led to a record 639,500 sq. m of leasable space occupied by Philippine offshore gaming operators (POGOs).
Demand from POGOs offset the slower expansion of BPO firms last year, as the government failed to approve Philippine Economic Zone Authority (PEZA) proclamations. Accreditation from the PEZA grant BPO firms tax perks, which encourage these companies to set up shop in the Philippines.
Colliers however said that PEZA proclamations have started picking up once again encouraging the expansion of BPO firms. Colliers projects BPO firms to take up at least 450,000 sq. m. of office space in 2018.
Also helping offset the slowdown in BPO firms were traditional companies, which include government agencies, logistics firms, construction firms, and online shopping firms.
“This segment has been largely forgotten in the past years as focus has shifted to BPOs… We see sustained demand from construction companies, logistics, and start-up companies, among others. We also expect growth in flexible workspaces with the potential entry of international co-working operators,” Mr. Macaranas said in the report. — Arra B. Francia