Supply shortage will inflate office rents

(CORBIS)   



Office rents in the Philippines will continue to rise by 15 per cent this year after increasing by 26 per cent in 2007, research released yesterday said. Rents will continue to post strong growth on the back of the demand from the business process outsourcing (BPO) segment and the lack of supply, analysts at property consultancy Colliers International said in a note.


Industry analysts predict that the BPO segment will need 1.85 million square metres of office space until 2010. Announced supply stands at 1.58 million, of which 634,000 square metres is under construction and 945,000 square metres is in the planning stages. If the planned developments do not push through, supply will remain tight, putting further pressure on rents.


Vacant space in most of the central business districts, or CBDs, is at single-digit levels, as not much supply is expected to hit the market in 2008, Colliers said.


In Makati CBD, where rents have breached the PHP1,000 (Dh90) per square metres per month mark, vacant space is at just three per cent. About 60,000 square metres of space will be completed this year, as available lot will remain below five per cent in 2008.


The available vacant space rate in Ortigas Centre was at four per cent by 2007-end, with only 20,000 square metres of office lot being constructed.


Fort Bonifacio, the fastest-growing area in the country, has a vacancy rate of 10 per cent.


About 200,000 square metres of space is expected to be developed this year. While this may seem a lot, a number of projects are already receiving pre-commitments for leasing space, the analysts said.


RESIDENTIAL

High-rise residential range is now broader and will span target markets from middle-income group (prices starting at PHP1.25 million per unit) to the high-end (in excess of PHP15 million per unit), Colliers said.

Accessibility will be a key consideration, especially in the middle-income to the upper-income segment.

“Project concepts will be stronger. We are seeing plans being heavily themed given that the market is starting to be more competitive,” the analysts wrote.

There are new developers in the market who are receiving good pre-sales take-up. In 2007, concepts such as Z-loft units, themed cluster developments, interesting pocket gardens and sole amenity floors started taking root. The consulting firm expects to see more of these projects in 2008.

The level of facilities and amenities offered by the developers will differentiate projects this year. This will be especially true in the high-end segment, where the level of facilities and amenities will justify the price.

Location is still an important consideration. Premium price would be paid for projects that are close to retail centres, schools, business districts and transportation hubs.

High-end developers will test the PHP110,000 per square metre price level. This could be done by launching projects in prime locations and offering top amenities.

An emerging trend is cluster residential condominiums that would be offered as an enclave. This will bring the idea of exclusivity and privacy to select buyers.

Selling prices increased by 10 per cent last year, Colliers said. “We expect this to again increase by 10 per cent this year. Some locations may find it more difficult to increase prices due to relatively more supply.”

As an example, Colliers points to Fort Bonifacio. Currently, about 7,000 units are being sold and constructed until 2011. In an earlier report, Colliers said the stock of residential condominiums in the Makati CBD expanded by five per cent year-on-year in 2006 with the addition of 532 units from Columns Tower One and Shang Grand Tower. In the course of 2007, the stock was expected to expand by nearly three per cent.

Residential vacancy in the Makati CBD eased to 10 per cent at the close of 2006 from 12.5 per cent in fourth quarter of 2005. Net take-up for residential condominiums in the Makati CBD was estimated at 737 units – 17 per cent lower than 889 absorbed in 2005 – given that absorption is a function of the units completed during the year and the strength of the pre-selling effort. Besides the influx of dollars coming from overseas Filipino workers, the growing middle class, the low interest rate regime and flexible financing terms from developers and lenders alike fuelled the demand by end-user buyers instead of speculators.

According to Manila Times newspaper, the slowdown of the US economy may only make a blip in local real estate companies’ sales since the exposure of these firms to the US market is relatively small compared with their domestic sales. Some companies opted to keep a diverse clientele to escape the meltdown in the US housing market.

HOTELS

“Leisure is becoming more broad based and we are now seeing more affordable leisure options,” Colliers said.

Leisure lots are now being offered in smaller cuts and more affordable total contract prices such as Playa Calatagan. There are also condominium projects, such as Hamilo Coast, Terrazas de Punta Fuego and Alta Vista in Boracay, that make it more affordable and easier to maintain. More leisure concepts are being launched among which boutique hotels will be more prominent. These are hotel developments with less than 30 rooms, but are high on style and amenities.

The announcement of more hotels, including Raffles and Fairmont in Ayala Centre in the Makati CBD, is a welcome relief. The year 2007 saw frustrated travellers finding it hard to book hotel rooms in the Makati CBD.

The high occupancy rates in the Makati CBD and increasing tariff rates –the $150 (Dh550) to $200 (Dh734) effective rate is now being achieved) has led to spillover demand to other locations such as the Bay Area. Fort Bonifacio will likewise host more hotels to augment the tight supply in the Makati CBD. Shangri-La Hotel is the most prominent having acquired a 1.5-hectare property in a former military base.

The financial districts, which are witnessing a huge demand for rental space due to surge in outsourcing business and low supply, are trying to narrow the shortfall.

Developers have announced a number of commercial and residential projects in the central business districts in an effort to fill a large part of the shortage in 2008.

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