Office developers in QC urged to offer more competitive rates

Highest vacancy rate in MM

MANILA, Philippines — Property developers with office projects in Quezon City should consider offering more competitive rates to help taper down vacancy levels in the city, a property consultancy firm said.

In a media briefing, Pronove Tai International Property Consultants chief operating officer Monique Pronove said Quezon City registered the highest vacancy rate among Metro Manila business districts in 2018 at 13 percent.

Overall vacancy in Metro Manila for 2018 stood at four percent, with a total of 845,000 square meters (sqm) of new supply entering the market.

An additional 118,000 sqm of new office supply in Quezon City last year continued to drive vacancy levels upward, bringing the city’s total office stock to 1.1 million.

Quezon City registered a 12 percent year-on-year growth rate in terms of office stock.

For 2019, Pronove said Quezon City will be the fastest growing district in terms of office stock, forecast to grow by 31 percent as it is set to deliver the highest chunk of new supply at 343,000 sqm or 33 percent of the 1.04 million sqm new office supply scheduled to be completed in the year.

Pronove is projecting Metro Manila office stock to hit 11.7 million sqm this year, a 10 percent year-on-year growth from 10.6 million sqm office stock in 2018.

With Quezon City expected to have highest supply this year, Pronove is urging developers to be highly competitive in terms of rental prices.

“Those developers who have a one-stop shop would obviously be the most attractive,” Pronove said referring to projects with mixed components such as residential, office and retail.

Average rents for Grade A buildings in Quezon City grew by one percent in 2018 to P850 per sqm per month from P848 per sqm the previous year.

“If you are a stand-alone, if you are just an office building, you don’t have all the other complementary services, then you have to do something to attract the market,” Pronove said.

She added that having a residential component to development may also attract locators from the POGO (Philippine offshore gaming operator) market.

“Particularly if you are looking at the POGO, one of the requirements for them is accessibility but also having a residential component very near the workspace. That is not the same as IT-BPM, because IT-BPM workers are mostly Filipinos, but here we have foreigners working in POGO firms,” she added. 

Pronove emphasized that the vacancy in the Quezon City market is mostly concentrated in projects that are not along EDSA and the main thoroughfares.

“Those that are within EDSA have a big advantage. Those that are outside EDSA and the main thoroughfares would have to seriously think about being competitive in terms of their rates because as I’ve mentioned, you have very big players represented in Quezon City and most of their supply are being completed at this time,” she added.

Mike Munoz, research manager at Pronove Tai, emphasized that the lack of infrastructure in Quezon City is also a factor causing high vacancy levels.

“On a bigger scale, we also need to work on the infrastructure development in Quezon City. It’s not as competitive with other office districts. Traffic in Quezon City is the worst if you are going to compare it to other business districts,” Munoz said.

Despite the continued rise of vacancy in Quezon City, Pronove Tai reported that Quezon City was the third largest market in terms of office take-up in 2018, as it accounted for 16 percent or 170,000 sqm of the actual transactions in the year.

Taguig City accounted for the largest share of transactions at 255,000 sqm or 24 percent, followed by Makati City with a total of 187,000 sqm taken up or 17 percent of actual transactions.

Pronove reported that office space take-up grew 22 percent to 1.1 million sqm from 875,000 sqm in 2017.

The IT-BPM sector accounted for the largest share of the demand in 2018 at 46 percent, with take-up growing by 33 percent to 490,000 sqm from 378,000 sqm the prior year.

This was followed by traditional firms with a 29 percent share of the demand at 312,000 sqm, a 33 percent rise from 187,000 sqm in 2017.

In contrast, demand from offshore gaming firms dropped by 21 percent to 229,000 sqm from 291,000 sqm in the previous year.

Demand for flexible workspaces, on the other hand, surged by 258 percent to 37,000 sqm from 10,000 sqm in the year before.

Pronove stressed that take-up from the IT-BPM market would have been stronger without headwinds such as the delays in proclamations by the Philippine Economic Zone Authority (PEZA) and as well as uncertainties brought by the TRABAHO bill.

Despite challenges caused by the PEZA delays and the TRABAHO bill on the IT-BPM market, Pronove stilll expressed an optimistic outlook for the Metro Manila office market this year.

 She added that the IT-BPM sector to sustain growth momentum due to the growth of fintech (financial technology) and healthcare BPOs, while the logistics and healthcare sectors are to drive demand from traditional offices.

Moreover, offshore gaming firms are expected to continue expanding in other areas in Metro Manila such as Makati City, Bay Area (Pasay and Parañaque), Mandaluyong City, Muntinlupa City, Las Piñas City, Pasig City and Taguig City. They are also expected to expand to new wave cities such as Clark, Pampanga, Davao City and Cebu City.

Pronove said demand for flexible workspaces will also rise driven by the millennial market and the growth of single proprietorships.