Metro Manila - KMCi.kmcmaggroup.com/Research/KMC-Savills-Metro-Manilla-Office-Briefing-1Q-2016.pdfGrade A office spaces in Metro Manila with net absorption during the first three months

Metro ManilaOffice Briefing 1Q 2016

KMC MAGGroup

An International Associate of Savills

KMC MAG Group ResearchMetro Manila

Metro Manila | Office Briefing

2

1,155,419 sq m

1,930,724 sq m

745,988 sq m

591,390 sq m

581,427 sq m

685,416 sq m

364,927 sq m

395,838 sq m

404,823 sq m

MAKATI CBD

BONIFACIO GLOBAL CITY

ORTIGAS CENTER

ALABANG

QUEZON CITY

BAY AREA

MCKINLEY

C5 CORRIDOR

DEVELOPMENT PIPELINE (2016-2019) CURRENT STOCK

MAKATI FRINGE

Metro Manila Office SubmarketsFuture Stock (2019)

1Q 2016

kmcmaggroup.com/research | 3

■ Nearly 120,000 sq m of new office spaces entered the Metro Manila office market in 1Q/2016. Quezon City received more than three-fourths of the new supply in the market with the completion of UP-AyalaLand Technohub Building P and Cyberpark Tower One in Araneta Center.

■ Sustained demand arising from the entry and expansion of outsourcing and offshoring companies led to the positive net take-up for Grade A office spaces in Metro Manila with net absorption during the first three months of the year reaching more than 90,000 sq m.

■ Overall vacancy levels in major submarkets decreased with the exception of` Makati CBD and Quezon City. During the first quarter of 2016, Metro Manila office market vacancy rate stood at 3.7%.

■ The positive net take-up in 1Q/2016 underpinned rents across all major submarkets. In 1Q/2016, Ortigas Center outperformed other districts with average rental rates increasing 1.4% QoQ and 5.5% YoY.

■ In the next few years, downward pressure on rental rates are likely to persist as record-high levels of upcoming supply are expected to enter the market. With the surge in new office spaces, landlords are seen to become more flexible in lease negotiations, aiming to retain existing tenants and attract new locators.

Metro Manila

Source: KMC MAG Group Research & Consultancy


GRAPH 2

Supply & Take-Up

TABLE 1

Key Figures - Grade A Office

GRAPH 1

Stock & Vacancy

0.0%

2.0%

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12.0%

0

1,000

2,000

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m (G

LA)

Metro Manila CBDs Grade A Office StockMetro Manila CBDs Grade A Office Vacancy Rate

0

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2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

'000

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m (G

LA)

Metro Manila CBDs Grade A Office SupplyMetro Manila CBDs Grade A Office Take-Up

1Q 2016 MakatiCBD BGC Ortigas

Center Alabang Quezon City Bay Area

Average net rental rate (Php/sq m/month)

990.4 878.0 632.2 609.6 715.3 676.7

Upper net rental rate (Php/sq m/month)

1,450.0 1,200.0 800.0 650.0 750.0 750.0

Vacancy rate (%) 2.6% 3.8% 1.7% 4.9% 10.8% 0.2%

Current stock (sq m) 1,080,863 1,002,714 635,199 285,959 457,183 307,662

Development pipeline 2016-2019 (sq m)

74,556 928,010 110,789 305,431 124,244 377,754

* Makati CBD includes Premium Offices


4

Makati CBD

GRAPH 6

Development Pipeline





GRAPH 4

Supply & Take-Up

GRAPH 5

Rental Performance

GRAPH 3

Stock & Vacancy

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Makati CBD Premium and Grade A Office StockMakati CBD Premium and Grade A Office Vacancy Rate

-30.0%

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-10.0%

0.0%

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3Q 2

007

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00

Makati CBD Rental Growth, YoYMakati CBD Premium and Grade A Office Rental IndexMetro Manila CBDs Grade A Office Rental Index

-40

-20

0

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2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F'0

00 s

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)

Makati CBD Premium and Grade A Office SupplyMakati CBD Premium and Grade A Office Take-Up

MARKET IN MINUTES

■ Makati CBD’s vacancy rate marginally rose to 2.6% in 1Q/2016 from 2.4% in 4Q/2015 after three successive quarters of decline. Vacancy rate increased as 3,100 sq m of previously occupied spaces became available for lease during the quarter.

■ Amidst the uptick in vacancy rate, the average rental rate grew by 1.0% QoQ and 3.4% YoY to Php 990.4 per sq m/month. At the end of the quarter, Makati CBD maintained a strong rental premium relative to other submarkets having an upper rental rate of Php 1,450 per sq m/month.

■ The absence of new supply during the year is seen to facilitate rental growth, further strengthening Makati CBD’s position as the prime central business district in Metro Manila.

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2015 2016F 2017F 2018F 2019F

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1Q 2016


Bonifacio Global City

GRAPH 10






GRAPH 8

Supply & Take-Up

GRAPH 9

Rental Performance

GRAPH 7

Stock & Vacancy

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Bonifacio Global City Grade A Office StockBonifacio Global City Grade A Office Vacancy Rate

-30.0%

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007

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Bonifacio Global City Rental Growth, YoYBonifacio Global City Grade A Office Rental IndexMetro Manila CBDs Grade A Office Rental Index

-50

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2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F'0

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Bonifacio Global City Grade A Office SupplyBonifacio Global City Grade A Office Take-Up

MARKET IN MINUTES ■ Boosted by nearly 29,000 sq m of new supply, total stock of Grade A offices in BGC breached the one million sq m-mark in 1Q/2016. Even with the new supply, overall vacancy rate in BGC improved to 3.8% during the quarter from 5.7% in 4Q/2015 backed by the strong demand from notable locators such as Baker & McKenzie Global Services Manila and Uber.

■ Rental rates continued to grow albeit at a milder pace as the YoY and QoQ growth rates posted during the quarter were the slowest since 2011. The average rental rate in BGC picked up to Php 878.0 per sqm/month in 1Q/2016, a 3.3% increase YoY and a 0.5% increase QoQ.

■ With over 300,000 sq m of new office spaces programmed to be delivered in the next three quarters, vacancy is anticipated to reach the double-digit territory at the end of 2016. As a result of supply-side factors, rental rate growth in BGC is likely to ease for the rest of the year.

0

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2015 2016F 2017F 2018F 2019F

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6

Ortigas Center

GRAPH 14






GRAPH 12

Supply & Take-Up

GRAPH 13

Rental Performance

GRAPH 11

Stock & Vacancy

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Ortigas Center Grade A Office StockOrtigas Center Grade A Office Vacancy Rate

-30.0%

-20.0%

-10.0%

0.0%

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3Q 2

007

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Ortigas Center Rental Growth, YoYOrtigas Center Grade A Office Rental IndexMetro Manila CBDs Grade A Office Rental Index

-20

0

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2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F'0

00 s

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(GL

A)

Ortigas Center Grade A Office SupplyOrtigas Center Grade A Office Take-Up

MARKET IN MINUTES ■ On the back of strong occupier demand for office spaces in Ortigas Center, the average rental rate in the submarket increased by 1.4% QoQ and 5.5% YoY, well above the growth rates observed in other business districts.

■ Due to the tightness in available space in the submarket, vacancy rate continued on a downward trend to 1.7% in 1Q/2016 from 2.1% in 4Q/2015. During the quarter, net absorption in Ortigas Center totaled to some 2,300 sq m.

■ The sustained demand for office spaces and the lack of upcoming supply in Ortigas Center are likely to support rental rate increases in the business district for the remainder of the year.

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2015 2016F 2017F 2018F 2019F

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1Q 2016


Alabang

GRAPH 18






GRAPH 16

Supply & Take-Up

GRAPH 17

Rental Performance

GRAPH 15

Stock & Vacancy

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Alabang Grade A Office StockAlabang Grade A Office Vacancy Rate

-30.0%

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007

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Alabang Rental Growth, YoYAlabang Grade A Office Rental IndexMetro Manila CBDs Grade A Office Rental Index

-40

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2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F'0

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LA

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Alabang Grade A Office SupplyAlabang Grade A Office Take-Up

MARKET IN MINUTES

■ The completion of about 13,000 sq m of new office space in 1Q/2016 moderately increased vacancy rates from 4.8% in 4Q/2015 to 4.9%. The solid net take-up of nearly 12,000 sq m during the quarter kept vacancy rate of the business district within the single-digit territory.

■ Despite the positive net take-up, the average rental rate in Alabang remained stable as it only rose by 0.7% QoQ from Php 605.3 per sq m/month in 4Q/2015 to Php 609.6 per sq m/month.

■ After two quarters of single-digit vacancies, Alabang is projected to experience double-digit vacancies again with the influx of some 102,000 sq m of new office spaces in the next 12 months thereby restraining rental rate growth in the submarket.

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8

Quezon City

GRAPH 22






GRAPH 20

Supply & Take-Up

GRAPH 21

Rental Performance

GRAPH 19

Stock & Vacancy

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Quezon City Grade A Office StockQuezon City Grade A Office Vacancy Rate

-30.0%

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Quezon City Rental Growth, YoYQuezon City Grade A Office Rental IndexMetro Manila CBDs Grade A Office Rental Index

-20

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2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F'0

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A)

Quezon City Grade A Office SupplyQuezon City Grade A Office Take-Up

MARKET IN MINUTES

■ Weaker-than-expected pre-leasing performance of newly completed office towers in Quezon City dampened the submarket’s vacancy rate from 1.2% in 4Q/2015 to 10.8%. This figure recorded in 1Q/2016 is the highest vacancy rate experienced by the business district within the last five years.

■ Even with the unprecedented level of available spaces during the quarter, rental rates in Quezon City increased by 6.5% YoY to an average of Php 715.3 per sq m/month in 1Q/2016.

■ Vacancy rate in Quezon City is forecasted to remain above 5.0% in 2016 as two more office towers adding close to 47,000 sq m of new office spaces are expected to be completed within the year. With the relatively high level of vacancy in the submarket in the foreseeable future, landlords in Quezon City are likely to become more flexible in lease negotiations, aiming to attract locators and retain existing tenants.

0

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1Q 2016


Bay Area

GRAPH 26






GRAPH 24

Supply & Take-Up

GRAPH 25

Rental Performance

GRAPH 23

Stock & Vacancy

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Bay Area Grade A Office StockBay Area Grade A Office Vacancy Rate

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2011 2012 2013 2014 2015 1Q2016

Ph

p /

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Bay Area Grade A Office Rental Growth YoYBay Area Grade A Office Rental Rates

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2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F'0

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Bay Area Grade A Office SupplyBay Area Grade A Office Take-Up

MARKET IN MINUTES

■ The small amount of available spaces in the Bay Area during the last quarter of 2015 has limited the overall level of absorption in the submarket at the start of the year, maintaining the business district’s low vacancy rate at 0.2%.

■ Rental rates in the Bay Area continued to rise in the first three months of 2016 but in a more modest pace. In 1Q/2016, average rental rate in the submarket was at Php 676.6 per sq m/month, an increase of 0.3% QoQ and 3.3% YoY.

■ Vacancy rate in the Bay Area is likely to slightly increase in the next quarters as a result of supply additions. With the demand and supply dynamics in the business district, rental rates are likely to keep growing in the near future although at a slower pace compared to previous years.

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10

■ C-5 Corridor, McKinley and Makati Fringe welcomed no new supply in the first three months of 2016. However, in the succeeding months, more than 78,000 sq m of new office spaces are expected to be completed.

■ In the next 12 months, McKinley will corner nearly two-thirds of the upcoming supply with the completion of seven buildings in McKinley West which include Cyber Sigma by Robinsons Land and the six West Campus Buildings by Megaworld. Meanwhile, MJ Corporate Plaza and Circuit Corporate Center 1 are expected to provide additional stock in Makati Fringe by 2Q/2016, and 1Q/2017, respectively.

■ Looking ahead, absorption of spaces in the three submarkets will be attributable to the relocation and expansion of outsourcing and offshoring companies in search of more affordable rental rates outside the main business districts.

Other Submarkets

Definition of other submarketsThese submarkets are not included in the aggregate Metro Manila figures



GRAPH 28

Development Pipeline by District

GRAPH 27

Stock by District

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McKinleyMakati FringeC-5 Corridor

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2015 2016F 2017F 2018F 2019F

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McKinleyMakati FringeC-5 Corridor

MCKINLEY

The Mckinley submarket is located south of Bonifacio Global City, covering Mckinley West and Mckinley Hill.

MAKATI FRINGE

Rockwell Center, Century City and Circuit Makati, as well as areas outside the Makati Central Business District, comprise the Makati Fringe submarket.

C-5 CORRIDOR

The C-5 Corridor submarket stretches from Eastwood City in Quezon City down to Arcovia City in Pasig City. The submarket consists of seven microdistricts which include the upcoming Ayala-Eton joint-venture project and Bridgetown Business Park by Robinsons Land.

1Q 2016


BGC is set to welcome another high-grade corporate center, Inoza Tower, a 20-storey Grade A office building along BGC’s 40th Street. Designed by architectural firm WTA Architecture and Design Studio, the upcoming tower will feature a distinctive, all-glass façade and a green wall system. With a typical floor plate of 1,100 sq m and a ceiling height of 2.8 m, Inoza Tower will offer top-quality office spaces, built according to the standards of traditional office locators such as multinational firms from finance, pharmaceutical, food and beverage, and technology industries as well as voice and non-voice BPO firms.

INOzA TOWERproject focus

locationBONIFACIO GLOBAL CITY

GrADe Grade A

TurnOver DATe Q3 2016

GrOss LeAsABLe AreA11,919.55 sq m

nO. Of fLOOrs20

fLOOr PLATe (GLA)1,100 sq m

HAnDOver COnDiTiOnWarm Shell

PezAUndergoing Accreditation

24 / 7 CAPABiLiTyYes

BACkuP POwer100%

GRAPH 29

12-month Supply Forecast by Building

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2Q 3Q 4Q 1Q

2016 2017

'000

sq

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Bay AreaBGC Makati Fringe McKinleyQuezon CityAlabangMakati CBD Ortigas Center


12

Michael McCulloughManaging [email protected]

Yves LuethiVice [email protected]

Antton NordbergHead of [email protected]

Melo PorciunculaHead of [email protected]

Rosario CarbonellDirector - Office [email protected]

Gerold FernandoAssociate Director - Office [email protected]

Lana OsmeñaGeneral Manager - [email protected]

Francis FuellasHead of Asset [email protected]

Since 2009, KMC MAG Group has provided clients with award-winning real estate services. As an international associate of Savills, KMC delivers world-class service strengthened with local market expertise. With over 100 employees involved directly in transactions for office, investments, industrial & hotel locators, as well as residential properties, KMC is a full-service real estate firm that has successfully become the leading local

firm in the Philippine real estate services industry.

This bulletin is for general information purposes only. Whilst every effort has been made to ensure its accuracy, KMC MAG Group accepts no liability whatsoever for any direct or consequential loss arising. The bulletin is strictly copyright and reproduction of the whole or part of it in any

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Documents

Metro Manila - KMCi.kmcmaggroup.com/Research/KMC-Savills-Metro-Manilla-Office-Briefing-1Q-2016.pdfGrade A office spaces in Metro Manila with net absorption during the first three months