Tight office space supply is projected to ease up starting next year with more new buildings coming online along with the rise in rental rates but hikes in rental rates will not be enough to dislodge the Philippines as the cheapest and most competitive BPO destination in the world, a property management firm said.
CBRE, the world’s leading real estate management consulting firm, has estimated there will be a steady supply of at least 500,000 square meter of office spaces each year until 2016 in the Philippines from the 700,000 square meter office space that will come online this year and a take up of 600,000 sqm.
Rick Santos, chairman and CEO of CBRE Philippines, said that 80 percent of the available office space would be gobbled up by the BPO sector and the front end offices with the remaining 20 percent.
“No end in sight for strong BPO demand in the Philippine commercial real estate sector,” said Santos.
“With the robust progress of real estate developments and BPO sector in the Philippines, it can now be considered as the India of Southeast Asia,” he added.
The completion of new buildings means easing up of the very tight 3 percent average vacancy rate at present to about 5 percent on the average starting next year.
“We are in a very tighter market for tenants right now,” said CBRE Director Morgan McGilvray.
Makati, the country’s premier financial district, has a very tight vacancy rate of 1.37 percent with average rent of P970.10 per square meter; Fort Bonifacio with 3.78 percent at P797 per sqm; Alabang with 4.37 percent at P601.78 per sqm; Quezon City with 0.07 percent at P627.1 per sqm; and Ortigas with P8.75 at P572.8 per sqm.
In terms of rents, CBRE said increase in rates could grow faster of between 8 to 10 percent but this hike in rental would be a lot lower than the 20 percent increases in other countries like Hong Kong and Singapore.
“The Philippines rental rates still remain the cheapest despite continuing rise. The Philippines is still five times cheaper than other countries,” McGilvray said.
Even countries like Indonesia and Vietnam where infrastructure is not as developed or just at par with the Philippines have higher increases in their rental rates.
Moving beyond 2016, CBRE Senior Director Jan Custodio said there is no slowdown in the next 18 to 24 months stressing the new stocks in 2015-2016 are now in the radar for expansion of companies.
“We’re secured in 2016 and even beyond that as more supplies are coming in for BPOs to expand their operations,” Custodio said.
Jason Abraham, another CBRE Director added that some of their BPO clients which used to look for 200-seat capacity office space but are now asking for space for 1,000 employes which would require 5,000 to 6,000 sqm.
Abraham also noted of the growing sophistication of clients and the elevated quality of labor.
“They are no longer limited to the customer relations management and voice support but financial and accounting, legal researches and healthcare,” he said.
Morgan, for his part, said he does not see any bumps beyond 2016.
“I would start to worry beyond 2016 if my clients are worried but they are not. There is enough stock to be released in 2016 and beyond so that is encouraging,” he said.
For his part, Santos said the resiliency of the Philippine economy and the real estate sector is expected to continue beyond 2016.
“The continuous transformation of cities into business landscapes will only strengthen the position of the country as an investment destination in the coming years,” he said.
Companies are even going for longer term lease contracts of 10 to 15 years from what used to be 3 to 5 year minimum contract.
For the retail sector, Custodio reported that the Philippines will continue to be the best bet in the Asia Pacific region with rental rates of $38 per sqm, which is 2 to 3 times cheaper than other competitor countries.
Aside from retailers flocking to the shopping malls, Custodio also noted of the sprouting of new convenience stores that are taking up prime spots in new buildings in various business districts in the country.
Custodio said there are 200,000 sqm of retail spaces that are going to be completed by end this year.
For industrial space, CBRE raised concern on the tight supply of industrial parks for new investors. This has forced investors to look at other sites like Subic, Clark and the Calabarzon areas.
The consumption led economy has also encouraged more multinational companies to relocate into the country.
There is also an influx of small and medium Japanese enterprises from China following political squabbles between the two countries, CBRE added.
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