Metro Manila Office Briefing Q2 2015

KMC MAG Group Research

Metro Manila

kmcmaggroup.com/research

Metro ManilaOffice Briefing Q2 2015

THE FACTS AT A GLANCE

Marketplace eagerly awaits new supply to match demand

À Net take-up of Premium and Grade A office spaces across all CBDs reached only 36,061 sq m in Q2/2015, once again hindered by the supply features.

À New supply was also limited in the second quarter of the year, as only one project was completed while several projects slated for completion in Q2/2015 have been moved to the second half of 2015 and early 2016.

À As a result of the healthy demand and no new supply, the overall vacancy rate remains low at 3.3% in Q2/2015, slightly declining from 3.7% in Q1/2015.

À On average, the rental rate of Grade A offices increased to 1.5% QoQ to Php 809.2 per sq m/month in Q2/2015 from Php 802.0 per sq m/month in Q1/2015.

À Although stock turnover was limited in H1/2015, an additional 430,000 sq m of

leasable Grade A office space is expected to enter the main CBD markets by the end of 2015, with around 44% to rise in Bonifacio Global City.

À In the short term, the current trend is likely to continue with rents expected to grow around 5.0-7.0% in the next 12 months. The large pipeline will put some pressure on vacancies that are seen to slightly increase until 2018.

kmcmaggroup.com/research | 2

Q2 2015Metro Manila | Office Briefing

Office Market Snapshot | Makati CBD

GRAPH 1

Stock & VacancyGRAPH 2

Supply & Take-up

GRAPH 3

Rental Performance

Makati CBD Market in Minutes

À In Q2/2015 prime rental rates in Makati surprisingly recorded only a modest 2.6% YoY growth to Php 958.6 per sq m/month despite the low vacancy rate of 3.8%.

À One reason for the modest rental growth might be the slow leasing activity in Tower 6789, which remains almost unoccupied.

À Rentals in the district are expected to keep climbing as no new stock is expected in the CBD until 2018. Makati still quotes the highest rentals as the current upper net rental rate is now at Php 1,400 per sq m/month.

Unit Q2/2015

Average net rental rate Php/sq m/month 958.6

Upper net rental rate Php/sq m/month 1,400.0

Average capital value Php/sq m 181,402.4

Equivalent yield % 8.50

Vacancy rate % 3.8

Current stock sq m 1,080,863

Development pipeline 2015-2018 sq m 55,400

TABLE 1

Key Figures - Premium and Grade A Office

Source: KMC Research & Consultancy Source: KMC Research & Consultancy




Office Market Snapshot | Bonifacio Global City

GRAPH 5

Supply & Take-up

GRAPH 6

Rental Performance

BGC Market in Minutes

À Prime rental rates in BGC continue to be promising with Q2/2015 rates increasing by 6.8% YoY, with average Grade A rent in the district at Php 855.0 per sq m/month. BGC’s vacancy rate further decreased to 1.3% due to low supply turnover and solid take-up at around 16,743 sq m for Q2/2015.

À The additional 190,000 sq m office space for turnover in 2H/2015 will likely increase vacancy as the market has limited time to absorb new supply despite strong pre-leasing activity.

À Construction activity in BGC will continue to remain active, with a pipeline of one million sq m doubling the stock by 2018.

Unit Q2/2015


Upper net rental rate Php/sq m/month 1,100.0



Vacancy rate % 1.3

Current stock sq m 779,667

Development pipeline 2015-2018 sq m 1,001,881

TABLE 2

Key Figures - Grade A Office

GRAPH 4

Stock & Vacancy





Office Market Snapshot | Ortigas Center

Ortigas Center Market in Minutes

À Average Grade A rental rate rose by 3.7% YoY at Php 609.9 per sq m/month in Q2/2015 from Php 588.3 per sq m/month in the same period last year. The vacancy rate decreased by a marginal 20 basis points to 3.5% in the quarter

À In the next quarter, the CBD is expecting to see the turnover of the iconic BDO Corporate Center, which will house the largest bank in the country

À Other than the BDO Corporate Center, no new leasable space is expected to enter the market until the second half of 2016, which will likely keep the vacancies declining and rental growth increasing.

GRAPH 7


Supply & Take-up

GRAPH 9

Rental Performance

Unit Q2/2015


Upper net rental rate Php/sq m/month 750.0



Vacancy rate % 3.5



TABLE 3






Office Market Snapshot | Alabang

Alabang Market in Minutes

À Average rental rate in Alabang grew only by 0.2% YoY to Php 602.4 per sq m/month in Q2/2015.

À Rentals in Alabang are expected to stagnate or even decline as the market needs time to absorb the latest and the upcoming supply additions. Lower rental rates would also help alleviate the district’s 14.1% vacancy rate for Q2/2015.

À The rather slow take-up might reflect to lower demand as occupiers prefer to locate in more accessible and public commuter-friendly business districts.

GRAPH 10


Supply & Take-up

GRAPH 12

Rental Performance

Unit Q2/2015





Vacancy rate % 14.1



TABLE 4






Office Market Snapshot | Quezon City

Quezon City Market in Minutes

À Average rental rate increased by 7.8% YoY to Php 688.1 per sq m/month in Q2/2015 while vacancy rate remains low at 1.0%.

À The low vacancy rate and strong rental growth have placed Quezon City as one of the best performing submarkets in Metro Manila. As a result, property developers now eye the submarket for their projects.

À Pipeline for new office stock is mainly through Ayala Land’s Vertis North Corporate Center towers and Araneta Group’s Cyberpark Tower One, which will be the first of the five-tower series.

GRAPH 13


Supply & Take-up

GRAPH 15

Rental PerformanceTABLE 5


Unit Q2/2015





Vacancy rate % 1.0







Office Market Snapshot | Bay Area

GRAPH 16


Supply & Take-up

GRAPH 18

Rental Performance

Bay Area Market in Minutes

À Bay Area posted the highest rental growth rate at 18.3% YoY, bringing rental rate to Php 655.1 per sq m/month; and the lowest vacancy rate at 0.5% among all districts in Q2/2015.

À However, vacancies in Bay Area are likely to rise in the next three quarters, as a result of the turnover of a total of 120,000 sq m of new office space in the emerging business district.

À Likewise, beyond 2016, several planned office developments such as two more E-Com towers, Aseana Three and four office towers in the 4.5-hectare DoubleDragon Meridian Plaza will keep the construction activity in Bay Area robust.

Unit Q2/2015





Vacancy rate % 0.5





TABLE 6


KMC MAG Group

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Metro Manila Office Briefing Q2 2015