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Manila office take-up to reach record-high of 1 million square meters

Manila, August 8, 2018 - The Metro Manila office sector remains robust with net take up for the first six months of 2018 already outpacing FY 2017 figures. Midway through 2018, Colliers recorded a net take up of 641,000 sq m, already higher than the 638,000 sq m posted for the entire 2017. For 2018, Colliers expects a little over 1 million sq m of net take up, the highest in Metro Manila’s history. We see the strong demand being complemented by record-high completion of new office buildings across the country’s capital.



Colliers attributes the higher-than-expected take up to a number of factors. Among the key contributors is the expansion of business process outsourcing (BPO) companies that held off plans in 2017. The initial uncertainty in the Manila office market was brought about by the lurch to economic nationalism in the United States, led by President Trump’s anti-outsourcing stance; perceived decline in the peace and order situation in the Philippines associated with extrajudicial killings; and delay in the proclamation of Philippine Economic Zone Authority (PEZA) buildings. The strong take up in 1H 2018 indicates that firms’ initial concerns have already been addressed.



“We have observed that transactions in the first six months of the year remain diversified and Colliers believes that this bodes well for the Manila office sector in general,” said Dom Fredrick Andaya, Colliers International Philippines director for office services.



Offshore gaming firms continue to be a major contributor to office demand in Manila. For the first half of 2018, these companies accounted for 24% of total deals, taking up about 180,000 sq m of space. Initially operating within the Bay Area, offshore gaming companies have started to occupy space in other sub-locations within the country’s capital, with deals closed in Quezon City and Makati Fringe in the second quarter of 2018.



Strong demand from non-outsourcing firms



The demand from non-BPO and traditional occupants remains robust. This sector, which includes government agencies, covered 34% of all transactions in the first half of 2018 or more than 250,000 sq m (2.7 million sq ft). The Philippine economy has been expanding by an average of 6.3% per annum since 2010. This robust growth reflects not just the sustained dynamism of the BPO-led Services sector but also the expansion of other key economic sub-sectors such as construction, telecommunications, banking and finance, warehousing and logistics, and manufacturing. Companies engaged in these businesses were compelled to expand and thus occupy larger and high-quality office space.



“The Philippine economy is projected to grow between 6.5% and 7% per annum over the next three to six years and this should help sustain the traditional firms’ demand for office space,” Andaya added.



Major non-BPO deals for the first six months of 2018 include state-led firms and fast-moving consumer goods (FMCG), engineering, insurance, online shopping, and logistics companies. Significant space was also occupied by flexible space operators such as Figari, Clock In, and Common Ground. This indicates that the flexible space market in Metro Manila continues to thrive.



Record-high supply



About 630,000 sq m (6.78 million sq ft) of leasable space was completed during the first six months of 2018. Colliers sees at least 440,000 sq m (4.7 million sq ft) of additional office space being delivered for the remainder of 2018, pushing the 2018 completion to a little over 1 million sq m, another historical high.



From 2019 to 2021, we project the completion of about 820,000 sq m (8.8 million sq ft) of new office space per year. The Bay Area, Fort Bonifacio and Ortigas Center will corner bulk of the new supply.



Lower vacancy



Colliers projects Metro Manila office sector to post a 5% vacancy by end-2018. Sustained demand should temper the impact of new buildings. Hence, we see vacancy hovering between 5.3% to 6% per annum from 2019 to 2021. Colliers believes that a projected vacancy of between 5% and 6% per year from 2019 to 2021 should provide occupants with wider office space options to choose from.



Colliers believes a 4.1% vacancy, which the Metro Manila office sector recorded after the 2009 Global Financial Crisis up to 2016, hinders companies’ capacity to expand as they do not have an adequate choice of immediately available space.



Offshore gaming to expand outside Manila



Offshore gaming firms are continuously expanding, looking for office buildings with large floor plates. But vacancy in the country’s capital remains tight, pushing these companies to look for space outside Manila. Colliers encourages new and expanding offshore gaming companies to look for space in viable sites outside of Manila such as Cebu, Pampanga, and Laguna.



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Joey Bondoc

Associate Director



Prior to joining Colliers in March 2016, Joey worked as a Research Manager for a research and consutancy firm where he handled business, political, and macroeconomic analysis. He took part in a number of consultancy projects with multilateral agencies and provided research support and policy recommendations to key government officials and top executives of MNCs in the Philippines.

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