Offshore gaming redefines the office market Dinbo Macaranas Senior Research Manager Demand for office space in Metro Manila remained strong in Q4 2016, reaching 154,000 sq m (1.66 million sq ft), pushing 2016 take-up to a total of 676,000 sq m (7.28 million sq ft), 7% above 2015. Demand was still driven by Information Technology and Business Process Management (IT-BPM) companies but was augmented by offshore gaming firms, particularly in Q4 2016. Colliers believes that both tenants and developers must brace themselves for an increase in rents across submarkets as the surge of offshore gaming firms redefines the market. We suggest that tenants should be quick to close transactions to ensure that they acquire their chosen workspace. Developers on the other hand, must be timely in delivering buildings to address the tenants' immediate office needs. Makati CBD vs. Metro Manila Office Stock Source: Colliers International Philippines Research Forecast at a glance Demand We expect demand to grow by 8% in the next twelve months, reflecting higher level IT-BPM services growth and the surge of offshore gaming firms. Supply Barring further significant construction delays, we expect additional supply in the next twelve months to reach over 880,000 sq m (9.47 million sq ft). Vacancy rate Vacancies are likely to remain low despite new office completions with strong pre-leasing seen across submarkets. We expect overall Metro Manila vacancy to hover between 4.0% and 4.5% in the next twelve months. Rent Alternative locations likely to see faster rents as offshore gaming deals are closed with minimal negotiations. We predict CBD rents will grow by 5 to 6%, while alternative locations grow on average by 8 to 10% over the next twelve months. Forecast New Supply, Major CBDs (GLA, in sq m) Year Makati CBD Fort Bonifacio Ortigas Center As of 2015 3,205,128 1,561,949 1,273,918 2016 8,062 16,114 270,839 2017F 28,405 66,414 401,910 2018F 77,623 43,344 210,813 2019F 51,534 13,675 245,223 2020F 193,841 341,815 32,927 Total 3,564,593 2,043,312 2,435,629 Source: Colliers International Philippines Research 0% 2% 4% 6% 8% 10% 12% M 5M 10M 15M 20M 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F GLA (sq m) Makati CBD Stock (LHS) Metro Manila Stock (Total) (LHS) Total Stock YoY Change (RHS) Colliers Quarterly PHILIPPINES | OFFICE Q4 2016 9 February 2017
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office market Dinbo Macaranas Senior Research Manager
Demand for office space in Metro Manila remained
strong in Q4 2016, reaching 154,000 sq m (1.66
million sq ft), pushing 2016 take-up to a total of
676,000 sq m (7.28 million sq ft), 7% above 2015.
Demand was still driven by Information Technology
and Business Process Management (IT-BPM)
companies but was augmented by offshore gaming
firms, particularly in Q4 2016. Colliers believes that
both tenants and developers must brace themselves
for an increase in rents across submarkets as the
surge of offshore gaming firms redefines the market.
We suggest that tenants should be quick to close
transactions to ensure that they acquire their chosen
workspace. Developers on the other hand, must be
timely in delivering buildings to address the tenants'
immediate office needs.
Makati CBD vs. Metro Manila Office Stock
Source: Colliers International Philippines Research
Forecast at a glance
Demand We expect demand to grow by 8% in the next twelve months, reflecting higher level IT-BPM services growth and the surge of offshore gaming firms.
Supply
Barring further significant construction delays, we expect additional supply in the next twelve months to reach over 880,000 sq m (9.47 million sq ft).
Vacancy rate
Vacancies are likely to remain low despite new office completions with strong pre-leasing seen across submarkets. We expect overall Metro Manila vacancy to hover between 4.0% and 4.5% in the next twelve months.
Rent
Alternative locations likely to see faster rents as offshore gaming deals are closed with minimal negotiations. We predict CBD rents will grow by 5 to 6%, while alternative locations grow on average by 8 to 10% over the next twelve months.
Forecast New Supply, Major CBDs (GLA, in sq m)
Year Makati CBD Fort Bonifacio Ortigas Center
As of 2015 3,205,128 1,561,949 1,273,918
2016 8,062 16,114 270,839
2017F 28,405 66,414 401,910
2018F 77,623 43,344 210,813
2019F 51,534 13,675 245,223
2020F 193,841 341,815 32,927
Total 3,564,593 2,043,312 2,435,629
Source: Colliers International Philippines Research
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Makati CBD Stock (LHS) Metro Manila Stock (Total) (LHS)
Total 8,884,650 888,509 967,945 871,200 952,860 12,565,165
*Includes Araneta Center, Eastwood City, and North EDSA Triangle **Manila and other fringe locations Source: Colliers International Philippines Research
Offshore gaming take-up redefines the Metro Manila market in Q4 2016
Demand for office space remained robust in Q4,2016
reaching 154,000 sq m (1.66 million sq ft), pushing 2016
take-up to a total of 676,000 sq m (7.28 million sq ft), 7%
higher than 2015. Supply, on the other hand, saw
numerous delays as completions totalled a mere
543,000 sq m (5.84 million sq ft) – significantly lower
than the forecast earlier in the year of 880,000 sq m
(9.47 million sq ft), primarily due to the lack of skilled
laborers. Excluding the effects of construction delays in
Q4 2016, full year demand would have grown by 15%
versus 2015.
Makati CBD Office Supply and Demand
Source: Colliers International Philippines Research
The market was still primarily driven by IT-BPM
companies. Close to 60% of take-up across Metro
Manila came from IT-BPM companies. Non-BPO
companies comprised 32%, while the balance came
from off-shore gaming companies. A total of 85,000 sq m
(915,000 sq ft) of office space was taken up by offshore
gaming companies in 2016, most of which came in the
last quarter. This was a significant jump from a handful
of deals recorded noted in the previous two years. In Q4
2016 alone, over 70,000 sq m (753,000 sq ft) was taken
by offshore gaming companies, inclusive of pre-
commitments. Interestingly, the minimum volume take-
up of these companies stands at 10,000 sq m.
Take-up from non-BPO companies also continued in the
market, primarily in the central business districts of
Makati and Fort Bonifacio. Finance firms Metrobank,
Home Credit, and Citibank, among others, also
contributed significantly to the 2016 transactions. These
are among the firms that moved to newer, more modern
office spaces. Recently, more companies have
consolidated in newer buildings and looked for flight-to-
quality opportunities as their leases in older buildings
expire.
Offshore gaming, IT-BPM and tenants’ flight-to-quality to drive market in the medium term
The three major drivers: (1) influx of offshore gaming
companies, (2) continuous expansion of IT-BPM; and (3)
tenants looking for flight-to-quality opportunities, drove
the market in 2016. For 2017, Colliers foresees the same
drivers dictating the pace in the market, with overall
Metro Manila demand projected to grow by 8%.
As noted earlier, offshore gaming companies drove Q4
2016 market demand. While many are looking at the
Pasay-Bay Area as the preferred location given its
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New Supply During Year (LHS) Take-up During Year (LHS)
rents downward Dinbo Macaranas Senior Research Manager
Pre-selling take-up rebounded in 2016 after four
consecutive years of decline. Take-up has been
strong across unit sizes as previous years' launches
are also sold. Colliers attributed this to the favorable
interest rate environment which still encourages
buyers to acquire condominium units. However,
take-up in Metro Manila's secondary residential
market remains soft amid the influx of new
completions across submarkets. Developments in
fringe locations have become a viable alternative to
the expensive projects in established business
districts, leading to rising vacancies in Makati CBD,
Fort Bonifacio, and Ortigas Center. Given the falling
occupancy rates, Colliers recommends that
developers establish their own leasing arms to
assist owners in leasing out their units to a targeted
clientele and attain the promised yields. This
initiative should complement the developers' well-
established pre-selling teams.
Makati CBD Residential Stock
Source: Colliers International Philippines Research
Forecast at a glance
Demand Colliers sees both pre-selling and leasing take up in the CBDs slowing down in the next twelve months due to the completion of more projects in the fringes.
Supply
Barring further delays, Colliers sees an additional 22,800 units being completed in the next twelve months.
Vacancy rate
Colliers expects vacancies across submarkets rising due to the substantial amount of projected new supply. Vacancies in major business districts are projected to increase between 12% and 16% over the next twelve months.
Rent
Colliers projects rents in major CBDs declining between 2% and 6% over the next twelve months due to slow absorption and delivery of new units in the fringes.
Hotel occupancy in the second half of the year rose
due to record-high tourist arrivals and sustained
growth in tourist expenditures. This partly offsets
the impact of the completion of additional rooms in
the Entertainment/Pasay Bay Area and established
business districts. Colliers expects more than 4,000
rooms being added to Metro Manila's hotel room
stock for 2017. With sustained arrivals from
traditional visitor-generating markets such as South
Korea and China, Colliers recommends the
development of more three- and four-star hotels,
particularly in the fringes of Metro Manila. With the
Philippines emerging as a viable location for major
international events, Colliers encourages developers
to apportion larger space for meetings, incentives,
conferences, and exhibits (MICE) facilities.
Metro Manila Hotel Room Stock
Source: Colliers International Philippines Research
Forecast at a glance
Demand The demand for accommodation in Metro Manila should continue to be driven by the Philippines’ traditional visitor-generating markets such as South Korea, United States, and Japan. Colliers sees total arrivals in 2017 rising by 10% to 6.6 million. Demand among three- and four-star hotels will continue to drive the market.
Supply
Colliers projects about 4,000 new hotel rooms being completed in Metro Manila this year. Bulk of the new rooms will be in the Entertainment/Pasay Bay Area.
Vacancy rate
Given the encouraging tourist arrival figures, Colliers expects hotel occupancy in Metro Manila to hover between 65% and 70% over the next twelve months.
Room rate
Colliers sees hotel rates increasing by a marginal 2%-5% over the next twelve months.
The government's continued efforts to attract more
manufacturing investments should lead to greater
demand for industrial lots and facilities in the Cavite-
Laguna-Batangas corridor. Colliers sees the surge in
manufacturing investments from Japan, China, and
Taiwan being sustained over the near to medium
term as foreign manufacturers take advantage of the
Philippines' preferential trade deals with the
Association of Southeast Asian Nations (ASEAN)
and the European Union (EU). While Cavite, Laguna,
and Batangas remain as popular locations for
manufacturers given their proximity to Metro Manila
and the planned implementation of crucial
infrastructure projects, Colliers recommends that
developers start looking at other viable industrial
locations across the country such as Bataan,
Bulacan, Tarlac, and Pangasinan. This is particularly
important for cost-conscious manufacturers that
look for cheaper industrial lease rates. Colliers
encourages developers to take advantage of the
current administration's thrust to develop more
industrial zones throughout the country.
Philippine Industrial Supply Stock by Region of Highest Supply (Manufacturing)
Source: Philippine Economic Zone Authority
Forecast at a glance
Demand The demand for industrial space and standard factory buildings (SFBs) in the Cavite-Laguna-Batangas area should remain firm on the back of continued influx of investments from foreign manufacturing firms. Colliers sees the demand for industrial space spilling over to other provinces in Northern and Central Luzon.
Supply
Colliers expects the Cavite-Laguna-Batangas corridor’s industrial stock to grow between 5% and 10% over the next twelve months as developers respond to manufacturers’ increasing appetite for industrial space.
Vacancy rate
Colliers projects the overall vacancy of Cavite, Laguna, and Batangas industrial stock dropping to between 8% and 9% in 2017 from 9.5% as of end-2016.
Rent
Colliers expects industrial land and building leasehold rates to grow between 4% and 7% over the next twelve months.