Colliers Quarterly

MANILA | OFFICE
2Q 2018
13 August 2018

Historical highs
Joey Roi Bondoc Research Manager Forecast at a glance
Demand
The Metro Manila office sector remains robust with Colliers sees a net take up of 413,000
net take up for the first six months of 2018 already sq m (4.45 million sq ft) from July to
outpacing 2017 figures. For 2018, Colliers expects a December 2018, pushing 2018’s net
little over a million sq m (10.7 million sq ft) of net take up to a record-high 1.06 million sq
take up, the highest in Metro Manila’s history. We m (11.41 million sq ft), from 438,000 sq
see the strong demand being complemented by m (4.7 million sq ft) in 2017. From 2019
record-high completions. to 2021, we see a net absorption of
about 740,000 sq m (7.97 million sq ft)
To take advantage of the sustained take up, Colliers per year.
encourages developers to execute their construction
schedules strictly and consider acquiring parcels of Supply
We expect the completion of about
land around the nodes of new infrastructure projects
440,000 sq m (4.8 million sq ft) of new
where office towers could be built.
office space from July to December
2018. From 2019 to 2021, Colliers
Large multinational and knowledge process
expects the completion of about
outsourcing (KPO) firms with plans to consolidate 820,000 sq m (8.8 million sq ft) of new
should consider space within Ortigas, Fort office supply per year with Fort
Bonifacio, and the Bay Area as these locations will Bonifacio, Bay Area, and Ortigas Center
likely account for half of new space due to be accounting for half of the new space.
completed over the next six to 18 months. Cost-
sensitive government agencies and small Vacancy rate
businesses planning to transfer to new space should Colliers projects Metro Manila office
consider buildings in Quezon City. sector to post a 5% vacancy by end-
2018. Sustained demand should temper
We encourage outsourcing firms planning to avail the impact of new buildings. Hence, we
themselves of tax incentives to consider Philippine see vacancy hovering between 5.3%
and 6.0% from 2019 to 2021.
Economic Zone Authority (PEZA)-proclaimed space
including those in Ortigas Center. Rent
We see lease rates rising by about 8%
Meanwhile, buildings with large floor plates are
to 10% per year from 2019 to 2021.
being taken up quickly by offshore gaming tenants. Colliers expects lease rates to rise
To bridge the supply gap, we encourage these faster in Makati CBD and its fringes,
companies to start looking at viable sites outside Fort Bonifacio, and Manila Bay Area.
Manila such as Cebu, Laguna, and Pampanga.
Office Supply Forecast, GLA (sq m)
LOCATION AS OF 2017 2018F 2019F 2020F 2021F TOTAL
Alabang 572,600 60,700 81,300 - 77,800 792,400
Fort Bonifacio 1,916,800 220,700 220,600 206,200 32,900 2,597,200
Makati CBD 3,227,400 38,600 95,300 49,800 148,500 3,559,600
Makati Fringe 254,700 73,300 14,300 117,700 - 460,000
Ortigas Fringe 414,000 89,100 12,400 - - 515,500
Manila Bay Area 400,900 260,000 90,900 57,500 118,000 927,300
Ortigas Center 1,645,000 77,000 116,600 202,500 285,300 2,326,400
QC* 1,005,000 195,700 164,600 115,800 43,400 1,524,500
Others** 341,400 64,900 87,000 93,600 36,000 622,900
Total 9,777,800 1,080,000 883,000 843,100 741,900 13,325,800
Source: Colliers International Philippines
*Includes Araneta Center, C-5 Corridor, Eastwood City, and North EDSA Triangle
**Manila and other fringe locations

compared to year-ago figures. This indicates that

Office market exceeds occupiers’ initial uncertainty has been resolved.

expectations Breakdown of Office Transactions 2017 (Inner

Circle) vs 1H 2018 (Outer Circle)
The Metro Manila office sector continues to exceed our
projections as net take up for the first six months of the
year already outpaced net absorption in 2017. Midway
through 2018, Colliers recorded a net take up of 641,000
sq m (6.89 million sq ft), already higher than the 638,000 25% 24%
sq m (6.86 million sq ft) posted for the entire 2017. For
2018 we expect a little over 1 million sq m (10.7 million 16%
sq ft) of net take up, the highest in Metro Manila’s 35%
history. 9%

Colliers attributes the higher-than-expected take up to a

number of factors. Among the key contributors is the
40% 18%
expansion of business process outsourcing (BPO)
companies that held off plans in 2017. Prior to 2017,
BPO firms would take up about 50% to 60% of new 33%
office supply. But this dropped in 1H2017 when
outsourcing firms accounted for only 31% of recorded
transactions or only about 136,000 sq m (1.4 million sq BPO (KPO) BPO (Voice) Non-BPO Gaming
ft). The uncertainty in the Manila office market was
brought about by the shift to greater economic Source: Colliers International Philippines Research
nationalism in the United States, led by the anti- *Government entities are included in Non-BPOs
outsourcing stance of the present administration; the
perceived decline in the peace and order situation in the Transactions in 1H2018 remain diversified and Colliers
Philippines associated with extrajudicial killings; and believes that this bodes well for the Manila office sector
delay in the proclamation of Philippine Economic Zone in general.
Authority (PEZA) buildings. Being in a PEZA facility
Offshore gaming firms continue to be a major contributor
means tenants could apply for tax and non-tax
to office demand in Manila. For 1H2018, these
incentives. For 1H2018, demand from both knowledge
companies accounted for 25% of total deals, taking up
process outsourcing (KPO) and BPO firms slightly
more than 180,000 sq m (1.9 million sq ft) of space.
picked up, accounted for 42% of total transactions or
Initially operating within the Bay Area, offshore gaming
more than 320,000 sq m (3.4 million sq ft), almost double
companies have started to occupy space in other sub-

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locations within the capital, with 2Q2018 deals in About 630,000 sq m (6.78 million sq ft) of leasable space
Quezon City and Makati Fringe. was completed during the first six months of 2018.
Colliers sees at least 440,000 sq m (4.7 million sq ft) of
The demand from non-BPO and traditional occupiers additional office space being delivered for the remainder
such as construction, telecommunications, banking and of 2018.
finance, warehousing & logistics, and manufacturing
firms remains robust. These occupiers, including By the end of 2018, we see Metro Manila office stock
government agencies, accounted for 33% of all reaching 13.3 million sq m (141 million sq ft), up 36%
transactions in 1H2018 or about 250,000 sq m (2.3 from the 9.78 million sq m (105.3 million sq ft) in 2017.
million sq ft). Major non-BPO deals from April to June
were closed in newly completed and renovated buildings
in the Manila Bay Area and Makati CBD such as in the
Healthy 2019-2021 pipeline
Insular Life Building and iMET BPO. From 2019 to 2021, we project the completion of an
average of 820,000 sq m (8.8 million sq ft) of new office
Completed Buildings, 2Q 2018 space per year. The Bay Area, Fort Bonifacio and
Ortigas Center are scheduled to account for the bulk of
BUILDING LOCATION GLA, sqm
the new supply.
A.CBK Building Others (Manila) 5,700
Filinvest Axis Alabang 39,300 From only 640,000 sq m (6.89 million sq ft) of GLA as of
Tower 1 2Q2018, the Bay Area’s stock is scheduled to reach
Silver City 4 Ortigas Fringe 16,800 more than 920,000 sq m (9.9 million sq ft) by end-2021.
Among the office towers scheduled to be delivered from
St. Francis Square Ortigas Center 11,500
BPO 2019 to 2021 are Ayala Bay Area Corporate Center by
Ayala Land; Filinvest Pasay Cyberzone Tower 3 (A) by
Three E-com Manila Bay Area 61,000
Center Filinvest Land; Six E-Com Center by SM Prime, Meridian
Park Tower 5 (East) and 6 (West) by Double Dragon,
W Mall Manila Bay Area 10,100
and Met Live by Federal Land.
City Gate HQ Makati CBD 19,500
Office/ Ayala Fort Bonifacio’s supply pipeline remains healthy, with the
North Exchange
HQ
business district scheduled to capture 19% of new
supply from 2019 to 2021. Some of the buildings due to
Total 164,000
be completed during the period are Worldwide Plaza,
Source: Colliers International Philippines Research; Total includes World Commerce Plaza, and One LeGrand by
buildings outside major submarkets Megaworld; Park Triangle Corporate Plaza North Tower
and Alveo Park Triangle Tower by Alveo Land, and
New supply in Key CBDs, Fringes Asian Century Center by Century Properties.

Seven buildings were completed in 2Q2018, delivering a We see Ortigas Center’s office stock rising by about
total of 164,000 sq m (1.746 million sq ft) of gross 604,400 sq m (6.51 million sq ft) from 2019 to 2021.
leasable area (GLA). Some 71,000 sq m (764,000 sq ft) Among the office towers scheduled to be delivered
was delivered in the Manila Bay Area following the during the period are SM Mega Tower by SM Prime and
completion of SM Prime’s Three E-com Center and W Jollibee Plaza by Double Dragon.
Mall. About 39,000 sq m (419,800 sq ft) was completed
in Alabang with the delivery of Filinvest Axis Tower 1. St. Vacancy Rates in Metro Manila Submarkets
Francis Square BPO’s completion added more than
LOCATION 1Q 2018 2Q 2018
11,000 sq m (118,400 sq ft) of GLA to Ortigas Center
while Makati CBD’s stock expanded by 19,500 sq m Makati CBD 1.2% 1.2%
(209,900 sq ft) with the delivery of Ayala Land’s City Fort Bonifacio 4.4% 3.8%
Gate HQ. Ortigas Center 4.5% 3.9%

In downtown Manila, the A.CBK Building added some Manila Bay Area 1.8% 1.9%
5,700 sq m (61,400 sq ft) of leasable space while Silver Source: Colliers International Philippines
City 4, located in the outskirts of Ortigas Center,
delivered nearly 17,000 sq m (183,000 sq ft) of GLA.

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Colliers expects a net take up of about 740,000 sq m
Fort Bonifacio, Bay Area capture (7.97 million sq ft) per annum from 2019 to 2021, up
lion’s share of transactions from our initial forecast of 550,000 sq m (5.9 million sq
Overall vacancy in Metro Manila declined to 4.9% from m) per year. Hence, Colliers is adjusting downward its
5.7% in 1Q2018. This indicates strong demand across overall vacancy forecast. From our initial estimate of 7%
all submarkets. to 9% vacancy from 2019 to 2021, we now see vacancy
declining to about 5.3 % and 6 %.
As of 2Q 2018, Fort Bonifacio recorded a vacancy of
3.8%, lower than the 4.4% posted in 1Q 2018. Fort Colliers believes that a projected vacancy of between
Bonifacio has long established its position as the 5% and 6% per year from 2019 to 2021 should provide
country’s major hub for higher value Knowledge Process occupants with wider office space options to choose
Outsourcing (KPO) services, housing firms such as from, compared to the 4.4% average vacancy from 2009
Google and Infor. Other major deals recorded in 1H2018 to 2016. A vacancy rate as low as 3% hinders
involve online shopping platform Shopee and flexible companies’ capacity to expand as they do not have an
workspace operator Figari. Colliers believes that the adequate choice of immediately available space. As a
transfer of Philippine Stock Exchange (PSE) from Makati result, the tenants’ relocation decisions are postponed or
CBD to Fort Bonifacio will likely entice equity firms to compromised by location, size or building quality with
transfer to this business hub. space standards declining as more employees are
jammed into ever decreasing workstation sizes.
For 2Q2018, Colliers recorded a marginal increase in the
Bay Area’s vacancy to 1.9% from 1.8% due to the Rents hold firm
delivery of new buildings in 2Q2018. But we expect the
new space to be absorbed from July to September. New Prime and Grade A office space in major business hubs
occupants in the Bay Area include an offshore gaming such as Makati and Fort Bonifacio continue to command
company, Amazon, and Philippine Amusement and the most expensive rates in the country’s capital, ranging
Gaming Corporation (PAGCOR), a state-owned firm. from PHP850 (USD15.90) per sq m to PHP1,700
(USD31.78) per sq m. The rates are about 9.7 % higher
Metro Manila Office Vacancy Forecast (sq m) compared to year-ago levels.

1,200,000 10.00% As of 2Q2018, landlords in the Manila Bay Area charge

between PHP800 (USD14.95) per sq m and PHP1,500
9.00%
1,000,000
(USD28.04) per sq m a month, up by about 37% YoY.
8.00% The brisk demand from offshore gaming firms has raised
7.00% average rental rates in the emerging business district.
800,000
6.00%
Prior to the influx of offshore gaming firms, lease rates in
the business district ranged between PHP600
600,000 5.00% (USD11.22) and PHP750 (USD14.02) per sq m a month.
4.00%
400,000 Rents in Ortigas Center hover between PHP650
3.00%
(USD12.15) and PHP900 (USD16.82) per sq m a month,
2.00% representing a 10.7% incease YoY.
200,000
1.00%
Colliers sees average rents across Metro Manila rising
- 0.00%
between 8% and 10% annually over the next three
2012
2013
2014
2015
2016
2017
2018F
2019F
2020F
2021F

years.

Supply Net Take-up Vacancy

Source: Colliers International Philippines Research

Other major occupants in 1H2018 were Alorica in

Quezon City; Accenture and WNS in Alabang; Manulife
in Makati CBD; Axiem Corporation and Teledirect in
Ortigas Center; and Ipsos in Mandaluyong.

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Comparative Office Rental Rates in
Metro Manila (PHP / sq m / month)
No need to turn off the tap – for
now
LOCATION Q2 2018 % CHANGE
(YoY) Colliers encourages developers to complete their office
buildings as scheduled to take advantage of the
Makati CBD* 1,200 - 1,700 9.7%
sustained demand coupled with tightening vacancy
Fort Bonifacio 850 - 1,500 11.9% across the country’s capital. Data from the Philippine
Ortigas Center 650 - 900 10.7% Statistics Authority (PSA) reveal that the Philippine
Manila Bay Area 800 - 1,500 37.3% economy has expanded by about 6.7% over the past 12
QC* 650 - 950 6.7%
months. This robust growth reflects not just the
sustained dynamism of the outsourcing-led services
Alabang 650 - 750 3.7%
sector but also the expansion of other key sub-sectors
Source: Colliers International Philippines Research such as construction, telecommunications, banking and
*Prime and Grade A finance, warehousing and logistics, and manufacturing.
**Eastwood
Companies engaged in these businesses were
compelled to expand and thus occupy larger and high-
TRAIN 2 remains a concern quality space. Multinational banks and economists
project the Philippine economy to grow between 6.5%
The government’s proposal to enact the second phase of
the Tax Reform for Acceleration and Inclusion (TRAIN) and 7.0% annually from 2019 to 2022 and this should
program remains a concern among BPO investors. sustain demand for office space.
Among the measure’s proposals is the reduction of
In fact, the latest take-up and pre-commitment figures
corporate income taxes and rationalization of incentives
point to a sustained demand over the next two to three
granted to foreign investors, i.e. imposition of a 15% tax
years. As of 2Q2018, about 31% of office space due to
on outsourcing firms’ net taxable income, against the
be completed from July to December of 2018 has been
existing five percent tax on gross income earned. The
pre-leased. Meanwhile, nearly 20% of office space
proposed bill also limits the income tax holiday (ITH)
projected to be delivered in 2019 has already been pre-
period to four years with no extension compared to the
committed. Fort Bonifacio, Ortigas Center, and Quezon
current regime of four years, extendable to six years.
City are among the locations that recorded strong pre-
The measure is still pending at the House of
leasing. We expect developers to cash in on this and
Representatives. At the current pace, the earliest this bill thus do not see any significant drop in scheduled supply
would go through the House of Representatives would
over the next three years.
be 1Q2019. The measure would then be transmitted to
the Senate, where the measure is expected to face a
rough sailing, especially among lawmakers that are Ortigas Center, Quezon City for
eyeing re-election in the 2019 polls. traditional occupiers, government
Industry organizations such as Information Technology agencies
and Business Process Association of the Philippines Limited supply and surging lease rates in the more
(IBPAP) and Call Center Association of the Philippines established business hubs such as Makati CBD, Fort
(CCAP)have expressed opposition to the proposed bill, Bonifacio, and Manila Bay Area are constricting cost-
noting that removing or streamlining tax perks currently sensitive small businesses and government agencies
enjoyed by outsourcing firms may affect the Philippines’ from occupying space in these locations. Colliers
competitiveness as a BPO investment hub. recommends that these firms look to buildings within
townships in Quezon City that offer between 20% to
40% discount in lease rates. Government agencies such
as the Philippine Competition Commission (PCC), and
Philippine Statistics Authority (PSA), for instance, have
transferred to newer buildings in Quezon City such as
Vertis North Corporate Center and CyberPod Centris
Eton One.

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Meanwhile, firms looking for PEZA-proclaimed space Colliers believes that the construction of public
should consider office buildings in Ortigas Center where infrastructure by private developers should also result in
there is still sufficient PEZA-proclaimed space. Among the emergence of other sub-locations for office towers,
the buildings in the business hub that have PEZA- such as Arca South and Paranaque Integrated Terminal
accreditation are St. Francis Square BPO, Robinsons Exchange. Both areas will likely add about 200,000 sq m
Cyberscape Gamma, and the 30th Corporate Center.
(2.1 million sq m) of leasable space to Metro Manila’s
stock.

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.

Improved connectivity in CBDs

The national government has approved the
implementation of the Metro Manila Subway Project.
Interestingly, seven out of the 14 stations are in Quezon
City with three stations (Mindanao Avenue-Quirino
Highway, Tandang Sora, and North Avenue) targeted for
completion by 2022. Aside from raising land values
around these stations, Colliers sees the subway’s
completion resulting in a more pronounced development
of mixed-use communities and office space in the
Northern Quezon City area. In our opinion, scouting for
properties in the area of the seven Quezon City stations
should be prioritized as these are likely to be completed
by 2025.

Other infrastructure projects that are worth looking into

and should improve access to office towers within CBDs
are the Metro Rail Transit (MRT)-7 and Skytrain
monorail. The latter is a project developed by Infracorp
and should benefit the Uptown Bonifacio township of
Megaworld.

For more information: Contributors:

Joey Roi Bondoc David A. Young Richard Raymundo
Research Manager Chief Operating Officer Managing Director
+632 858 9057
[email protected] Donica Cuenca
Research Analyst

Copyright © 2018 Colliers International.

The information contained herein has been obtained from
sources deemed reliable. While every reasonable effort has
been made to ensure its accuracy, we cannot guarantee it. No
responsibility is assumed for any inaccuracies. Readers are
encouraged to consult their professional advisors prior to
acting on any of the material contained in this report.
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