Manila, November 7, 2018 - The Metro Manila office market is on track to posting record-high supply and net take up for 2018. Outsourcing firms continue to expand while traditional and non-outsourcing companies that include flexible workspace operators continue to take up space across Metro Manila. The country’s improving competitiveness as an outsourcing destination is enticing major technology locators to open shop in Metro Manila.
Overall demand remains strong as Colliers already recorded about 810,000 sq m (8.72 million sq ft) of net take-up for the first three quarters of 2018. This is more than double the 370,000 sq m (3.98 million sq ft) posted in the same period in 2017. Given the current market conditions and sustained pre-leasing, Colliers projects a net take up of about 344,000 sq m (3.70 million sq ft) in 4Q2018 which should bring 2018 net absorption to about 1.15 million sq m (12.4 million sq ft). This is higher than our earlier projection of 1.06 million sq m (11.4 million sq ft). The 2018 figure will likely be the highest net take up in Metro Manila’s office sector history.
“Strong pre-leasing activities indicate that robust office space demand will probably be carried over to 2019. Colliers estimates that about 22% of office space projected to be completed over the next 12 months has already been pre-committed,” said Dom Fredrick Andaya, Colliers International Philippines director for office services.
Outsourcing demand dominates
For the first three quarters of 2018, demand from both knowledge process outsourcing (KPO) and BPO including voice companies continues to account for the largest share to total transactions, accounting for a combined 42% or nearly 480,000 sq m (5.17 million sq ft). Among the major deals closed during the first three quarters of 2018 involved Paypal, SMS Global Solutions, Alliance IT, Alorica, Accenture, Teledirect, SPi CRM, Infor, and Google.
“Amazon’s plan to open its first operations center in Manila proves that the country remains on the radar of large KPOs. This is reinforced by the recent improvement of Metro Manila’s ranking in the latest Tholons survey which ranks the most competitive outsourcing destinations in the world,” added Andaya.
Meanwhile, demand from non-outsourcing firms remains strong, accounting for a third of total transactions from January to September 2018. Among the companies that occupied space during the period are those providing engineering, pharmaceutical, advertising, online lending, construction, and insurance services.
Healthy supply pipeline
From 2019 to 2021, Colliers estimates the completion of about 2.66 million sq m (28.6 million sq ft) of new leasable space or 890,000 annually. Ortigas Center is scheduled to account for 24% of the new stock due to be completed during the period followed by Fort Bonifacio (17%), Manila Bay (16%), Quezon City (15%) and Makati CBD (10%).
Due to a lack of developable land and surging land prices in major business hubs such as Makati CBD, office space development has been more pronounced in the fringe locations. The strong demand coupled with a dearth of developable land is benefitting the Bay Area, with the reclaimed CBD posting the fastest increase of leasable space as of 3Q2018, at 80% YoY.
Metro Manila vacancy at sub-5%
Andaya added that “Colliers is projecting Metro Manila office vacancy to reach 5% by end 2018 as we see demand moving in step with supply.” Despite the projected record high completion of 1.18 million sq m (11.9 million sq ft) in 2018, we estimate demand to reach 1.15 million sq m (12.4 million sq ft), another historical high. Hence, we do not see a substantial change in vacancy by the end of 2018.
Colliers encourages developers to continue maximizing the strong demand and diversified tenancy in Metro Manila by implementing creative leasing schemes and offering a limited time concession rate for long-term, high-profile occupants including multinational corporations (MNCs); providing more flexibility in terms of office floor cuts to enable firms to acquire more space as they expand operations in the near term; and offering non-PEZA proclaimed buildings to offshore gaming firms looking for additional space in the country’s capital.
Meanwhile, Colliers encourages tenants to start pre-committing space in Ortigas Center as we see lease rates in 2019 to 2021 rising due to completion of new buildings and pre-leasing space in Paranaque Integrated Terminal Exchage (PITx) to capture the skilled manpower from Cavite, Laguna, and Batangas. Colliers also recommends that KPOs and multinational companies including equity firms with immediate office space requirements consider space in Fort Bonifacio that is being be vacated from 4Q2018 to 2019. A number of large tenants are expected to transfer to newer buildings in the business district from 2019 to 2021.