Despite project delays, office market holds up in H1

MANILA, Philippines - The Philippine office market continues to display an optimistic outlook despite the persistent delays in project construction as demand continues to rise, real estate analysts said.

In a briefing Wednesday, Pronove Tai International Property Consultants chief executive officer Monique Cornelio-Pronove said investor confidence in the real estate market remains high.

“There has not been any wait-and-see slowdown in terms of investing in the Philippines,” Pronove said. “We have not seen any stoppage in the construction activity, despite the fact that there’s construction delays and it’s really because we’re lacking manpower.”

Delays have been plaguing the country’s property sector, particularly in the office market in recent quarters, mainly due to the large amount of projects being simultaneously built and the Duterte administration’s aggressive infrastructure push.

Pronove said five office buildings initially set for completion in the second quarter of 2017 have moved their target completion date to the third quarter due to the lack of skilled workers. This will make available an additional 130,000 square meters of office space once completed.

She said despite the continued delays in project completions, Metro Manila’s total office stock is still forecast to grow 14 percent to 9.7 million sqm by the end of the year from 8.5 million sqm at the end of 2016.

The property consultancy firm said it has revised its forecast for the Metro Manila office market to a total 1.2 million sqm of new office space set to be completed this year. Last quarter, Pronove forecast new completions to hit 1.1 million sqm.

A total 46 new office buildings is slated for completion by the end of this year, according to Pronove. This is higher than end-2017 projection of 40 new office buildings it predicted in the previous quarter.

“While I’m saying that there were some delays, there are actually some buildings that were slated to be completed in 2018 that we felt have been fast-tracked and moved to the fourth quarter 2017,” Pronove said.

She attributed this to the continued demand for office space, as seen in the pre-commitment trend.

“So they fast-track it, particularly if you already have pre-leased tenants. So we’re seeing some developers able to fast-track,” Pronove said.

Property services firm Jones Lang Lasalle Philippines echoed Pronove’s sentiments as it pointed out the continued demand for office spaces.

“Biggest demand for office space comes from the offshoring and outsourcing (O&O) industry which has become enticing because of the cost-efficiency and low attrition rate in the Philippines,” JLL said in a statement.

Apart from the O&O sector, the property services firm said demand is also coming from other industries such as marketing, advertising, media, finance, banking and online gaming.

JLL said the rising demand has resulted in lower vacancy rates across Metro Manila’s business districts in the first quarter of 2017 at four percent.

“Among the sub-markets, Bay City and Ortigas CBD recorded the lowest vacancy rates at one percent and two percent, respectively,” JLL said.

Moreover, while the demand for office spaces is mainly driven by the O&O sector, JLL said there is a need for the industry to offer other services.  

“But to sustain the growth momentum in the O&O industry, there needs to be a shift to high-value sectors such as healthcare, financial services and animation,” it added.

Aside from the office market, the property services firm said the O&O sector continues to be a demand driver for the residential sector, particularly for the upper segments of the market.

“Demand drivers in the luxury market included expatriate employees in the offshoring and outsourcing (O&O) sector, while demand for mid-range condominium units is primarily coming from the over-all improvement in the income level of Filipino workers (due to increased employment and livelihood opportunities) and support coming from OF remittances,” JLL said.

Similar to the office market, JLL pointed out the residential property sector may be pushed back, due to the ongoing scarcity of construction workers.

The property services firm, however, said approximately 125,000 residential condominium units are expected to be added to the total stock of the Metro Manila residential market until 2021.

Most of these properties are located in Makati CBD and its outskirts, Ortigas CBD, BGC, Quezon City and Bay City.