Vol. XXI, No. 134
Thursday, February 07, 2008 | MANILA, PHILIPPINES
TIGHT SUPPLY pushed lease rates for Makati office space to historical levels last year, property services firm Colliers International Philippines, Inc. said. But while rents are expected to still increase, it would be at a slower pace.
Rent rates in luxury condominiums also went up last year while those for retail space posted single-digit growth.
In its latest overview of the Philippine real estate sector, Colliers said office rents in the Makati central business district rose by 32% in 2007 to an average of P1,128 per square meter per month, a historical high.
This was because there was no new office development in the district, it said.
"The stock of office space in the Makati [business district] has remained since late 2005 at 2.647 million," the report noted.
Besides the lack of supply, business process outsourcing firms as well as traditional companies have also been snatching up office space over the past few years.
Broken down by categories, premium office space — the best available — went for P935-1,320 per square meter per month in the fourth quarter of 2007, from P935-1,210 per square meter per month in the third quarter.
Grade A space, which is the second best choice, went for P495-1,073 from P495-1,045.
Meanwhile, Grade B spaces, or old office spaces in the central business district, were being offered for P440-P506 from P413-495.
Colliers data show that at the end of 2006, rents for premium grade office space averaged P853 per square meter per month, up 31% from the previous year. Grade A office spaces were rented out at P605 per square meter per month, up 30%, while rental for Grade B space averaged P440, 33% higher.
Colliers, however, noted that while lease rates would continue to rise this year, growth would be slower. "We believe that growth rates this bullish could not be sustained in the long run. Rates could temper to 10% to 15% in the course of 2008," it said.
By the end of the year, premium grade buildings in the district are expected to lease out space at P1,029-1,452 per square meter per month this year. Rents for Grade A spaces are expected to range from P545-1,180, while Grade Bs are seen to go for P484-557.
In a telephone interview, Colliers Regional Director for Research and Consultancy Richard Raymundo said "The base is high already. We’ve had two years of over 30% growth. You can’t have a 30% growth every year."
Despite new developments that are slated for completion this year, Makati office space supply would continue to be tight and the vacancy rate — down to 2.3% in 2007 from 3.7% in 2006 — would remain below 5%.
Three new developments are expected to be completed this year: the expansion of the GT Tower, which would add 6,602 square meters of space; the office component of Glorietta 5, which would add 14,118 square meters; and the Dela Rosa E Services 1, for another 41,354 square meters.
"Take note that these projects have mostly been pre-leased," Colliers said.
In a separate telephone interview, Leechiu & Associates senior manager Claro dG. Cordero, Jr. said that while the slowdown in rent rate growth would be felt by developers, it was not likely to happen this year.
"We see the same trend — the growth will be lower, but it’s not going to happen this year. It’s most likely going to be felt in the next 18 to 24 months," he said.
The easing of the growth in office space rent in the central business district, he said, would be due to additional office space coming onstream.
He also said that with more alternatives to Makati being developed, "we could see some big tenants going out of Makati to locate to other business districts" such as Fort Bonifacio, SM Bay City and Quezon City.
For the residential segment, rents for luxury condominiums are expected to continue to escalate in 2008, tapering off next year when ongoing developments are completed.
Colliers said that as of end-2007, rents for luxury three-bedroom units in the Makati business district went up 15% to average at P539 per square meter per month, or P140,000 per month for a unit, from P122,850 the previous year.
Over at Rockwell Center, rates went up by 5% in 2007 to an average of P636 per square meter per month and are seen to escalate by 10% this year. Residential rates in Fort Bonifacio, meanwhile, also expanded by 5% to P578 per square meter per month, but are expected to "underperform and escalate by only 5% in light of the influx of new supply."
Colliers said "massive oversupply" is expected at Fort Bonifacio.
For his part, Mr. Cordero said that Leechiu sees two directions for the residential sector.
The luxury segment, he said, "will still command a premium because there are no new developments in the pipeline ... We can still expect capital values [of high-end residential developments] go up. Right now, its at P90,000 to P100,000 per month," he said.
Middle income projects, however, are expected to suffer from the strengthening of the peso, which is now trading at the P40 to $1 level from last year’s P48 to $1.
"The middle income segment has been the center of development in the last five years, and they have tapped OFWs (overseas Filipino workers) ... if you look at the valuation of the dollar, their income has been reduced by conservatively 20%," Mr. Cordero noted.
He said that this could result in foreclosures of condominiums purchased by OFWs. If this happens, condominium prices would also likely fall.
As for retail, Colliers said few mall developers are expected to add to the total retail stock of 4.614 million square meters, allowing rental rates to escalate.
Manila-wide vacancy rates, Colliers said, eased to 14.7% as of end-2007 from 15.4% the previous year. It also said vacancy rates are expected to further ease to 11% this year.
[ Published by : Business World Online ] February 7, 2008
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