KMC KMC MAG Savills Group Research Metro Manila Metro Manila Office Briefing 1Q 217
Metro Manila Office Briefing Metro Manila Office Submarkets Future Stock (22) DEVELOPMENT PIPELINE (217-22) CURRENT STOCK MAP 1 827,617 sq m QUEZON CITY 442,91 sq m C5 CORRIDOR 396,668 sq m MAKATI FRINGE 66,399 sq m ORTIGAS CENTER 459,652 sq m GREATER ORTIGAS 1,218,447 sq m MAKATI CBD 2,44,144 sq m BONIFACIO GLOBAL CITY 796,64 sq m BAY AREA 4,86 sq m MCKINLEY 2 652,115 sq m ALABANG METRO MANILA CITIES QUEZON CITY CITY OF MANILA MAKATI CITY PASAY CITY PARAÑAQUE CITY LAS PIÑAS CITY SAN JUAN CITY MANDALUYONG CITY PASIG CITY TAGUIG CITY MUNTINLUPA CITY
1Q 217 Metro Manila GRAPH 1 ' sq m (GLA) 6, 5, 4, 3, 2, 1, GRAPH 2 1, Metro Manila CBDs Grade A Office Stock Metro Manila CBDs Grade A Office Vacancy Rate 29 21 211 212 213 214 215 216 217F 218F Metro Manila CBDs Grade A Office Supply Metro Manila CBDs Grade A Office Take-Up 12% 1% 8% 6% 4% 2% % During 1Q/217, Metro Manila added 162,2 sq m of office space. BGC accounted for two thirds of the new supply with the completion of W City Center and Citibank Plaza. Performance across submarkets was mixed. BGC, Alabang and Bay Area experienced a decline in vacancies despite an influx of new supply. There was impressive net take-up in these submarkets, but the overall vacancy rate in Metro Manila increased to 2.4%, due to decreased occupancy in Makati CBD and Quezon City. Although the vacancy rate was held in single digits, rental growth continued to normalize at 3.7% YoY. The Makati CBD maintained its premium in the capital after rentals grew by 3.8% YoY outperforming other submarkets. We are still expecting about 781,8 sq m of additional office supply within the year. Downward pressure on rents should persist in the coming quarters, however market appetite remains largely intact as evidenced by the brisk absorption of new completions during the quarter. ' sq m (GLA) 8 6 4 2 The better-than-expected performance in the first three months should ease concerns of double digit vacancy rates in Metro Manila this year. As occupier demand tries to keep up with the upcoming supply, vacancies may stay relatively elevated in the coming years. 29 21 211 212 213 214 215 216 217F 218F TABLE 1 Key Figures - Grade A Office 1Q 217 Average net rental rate (Php/sq m/month) Upper net rental rate (Php/sq m/month) Makati CBD BGC Ortigas Center Alabang Quezon City Bay Area 1,27.7 96.1 656.5 628.6 718.5 71.3 1,45. 1,2. 825. 675. 8. 75. Vacancy rate (%) 1.9%.9% 1.%.9% 11.9%.2% Current stock (sq m) 1,8,863 1,259,93 542,61 329,58 463,183 363,175 Development pipeline 217-22 (sq m) * Makati CBD includes Premium Offices ** Minor changes were made in Ortigas Center s stock and pipeline, please see page 6 137,584 784,214 63,789 322,67 364,434 432,889 kmcmaggroup.com/research 3
Metro Manila Office Briefing Makati CBD GRAPH 3 GRAPH 4 1,4 Makati CBD Premium and Grade A Office Stock Makati CBD Premium and Grade A Office Vacancy Rate 14% 1 Makati CBD Premium and Grade A Office Supply Makati CBD Premium and Grade A Office Take-Up 1,2 12% 8 ' sq m (GLA) 1, 8 6 4 1% 8% 6% 4% ' sq m (GLA) 6 4 2 2 2% 29 21 211 212 213 214 215 216 217F 218F % -2 29 21 211 212 213 214 215 216 217F 218F GRAPH 5 Rental Performance GRAPH 6 Development Pipeline 16 Makati CBD Rental Growth, YoY Makati CBD Premium and Grade A Office Rental Index Metro Manila CBDs Grade A Office Rental Index 3% 1 14 2% 8 3Q 27 = 1 12 1 8 1% % -1% ' sq m (GLA) 6 4 6-2% 2 4-3% 216 217F 218F 219F 22F MARKET IN MINUTES A large amount of contract expirations at the beginning of the year resulted in negative net-take up during 1Q/217. With no new completions, the increase in vacancy was modest, from the extremely low.6% in 4Q/216 to just 1.9% in 1Q/217. In spite of this, rental rates continued to grow at a healthy rate of 3.8% YoY beating other CBDs. Given the thin pipeline and the strong demand for office space in the Makati CBD, vacancies are expected to remain low in the coming quarters. 4
1Q 217 Bonifacio Global City GRAPH 7 GRAPH 8 2,1 Bonifacio Global City Grade A Office Stock Bonifacio Global City Grade A Office Vacancy Rate 21% 5 Bonifacio Global City Grade A Office Supply Bonifacio Global City Grade A Office Take-Up 1,8 18% 4 ' sq m (GLA) 1,5 1,2 9 6 15% 12% 9% 6% ' sq m (GLA) 3 2 1 3 3% 29 21 211 212 213 214 215 216 217F 218F % -1 29 21 211 212 213 214 215 216 217F 218F GRAPH 9 Rental Performance GRAPH 1 Development Pipeline 16 Bonifacio Global City Rental Growth, YoY Bonifacio Global City Grade A Office Rental Index Metro Manila CBDs Grade A Office Rental Index 3% 5 14 2% 4 3Q 27 = 1 12 1 8 1% % -1% ' sq m (GLA) 3 2 6-2% 1 4-3% 216 217F 218F 219F 22F MARKET IN MINUTES Amongst submarkets, BGC had the highest additional supply for the period, with a GLA of 17,6 sq m. Despite that, the vacancy rate remained extremely low as the additional supply was fully leased out. The sustained demand, as evidenced by the tight vacancy, supported rental growth of 3.2% YoY and averaged Php 96.1 per sq m / month. Given the aggressive development pipeline, a substantial increase in stock is expected in the horizon. Hence, a considerable rise in vacancy is anticipated in the coming quarters. kmcmaggroup.com/research 5
Metro Manila Office Briefing Ortigas Center GRAPH 11 GRAPH 12 8 Ortigas Center Grade A Office Stock Ortigas Center Grade A Office Vacancy Rate 8% 12 Ortigas Center Grade A Office Supply Ortigas Center Grade A Office Take-Up 7 7% 1 ' sq m (GLA) 6 5 4 3 6% 5% 4% 3% ' sq m (GLA) 8 6 4 2 2% 2 1 1% 29 21 211 212 213 214 215 216 217F 218F % -2 29 21 211 212 213 214 215 216 217F 218F GRAPH 13 Rental Performance GRAPH 14 Development Pipeline 16 Ortigas Center Rental Growth, YoY Ortigas Center Grade A Office Rental Index Metro Manila CBDs Grade A Office Rental Index 3% 5 14 2% 4 3Q 27 = 1 12 1 8 1% % -1% ' sq m (GLA) 3 2 6-2% 1 4-3% 216 217F 218F 219F 22F MARKET IN MINUTES Net take-up reversed in 1Q/217 and marginally increased vacancies to 1.% of stock from.5% in the previous quarter. The submarket s performance had minimal impact as vacancies were kept historically low which supported the rental growth of 3.2% YoY. New supply entering the Ortigas Center will be modest with just the completion of IBP Tower and Robinsons Cyberscape Gamma. Leasing activity in the CBD suggests that occupier demand should be able to absorb the new supply with ease. ** KMC Savills has redefined the Ortigas Center to be aligned with the estate boundaries with the introduction of Greater Ortigas which resulted in the minor changes in stock and supply. 6
1Q 217 Alabang GRAPH 15 GRAPH 16 6 Alabang Grade A Office Stock Alabang Grade A Office Vacancy Rate 3% 18 Alabang Grade A Office Supply Alabang Grade A Office Take-Up 5 25% 15 ' sq m (GLA) 4 3 2 2% 15% 1% ' sq m (GLA) 12 9 6 3 1 5% 29 21 211 212 213 214 215 216 217F 218F % -3 29 21 211 212 213 214 215 216 217F 218F GRAPH 17 Rental Performance GRAPH 18 Development Pipeline 16 Alabang Rental Growth, YoY Alabang Grade A Office Rental Index Metro Manila CBDs Grade A Office Rental Index 3% 16 14 2% 12 3Q 27 = 1 12 1 8 1% % -1% ' sq m (GLA) 8 6-2% 4 4-3% 216 217F 218F 219F 22F MARKET IN MINUTES Alabang performed well after experiencing another quarterly decline in vacancy in spite of the additional supply from Capella s 18,1 sq m of GLA. The low vacancy has led to a healthy growth rate of 3.1% YoY with rentals averaging Php 628.6 per sq m / month during the quarter. Alabang is expected to have a significant supply addition of 132,7 sq m within the next 12 months. This sizable increase in stock is estimated to push vacancies up to double digits, and should put significant downward pressure on rentals. However, the CBD s performance in 1Q/217 indicates that occupier demand is promising and should be able to comfortably absorb the upcoming stock. kmcmaggroup.com/research 7
Metro Manila Office Briefing Quezon City GRAPH 19 GRAPH 2 7 Quezon City Grade A Office Stock Quezon City Grade A Office Vacancy Rate 35% 14 Quezon City Grade A Office Supply Quezon City Grade A Office Take-Up 6 3% 12 ' sq m (GLA) 5 4 3 25% 2% 15% ' sq m (GLA) 1 8 6 4 2 1% 2 1 5% 29 21 211 212 213 214 215 216 217F 218F % -2 29 21 211 212 213 214 215 216 217F 218F GRAPH 21 Rental Performance GRAPH 22 Development Pipeline 16 Quezon City Rental Growth, YoY Quezon City Grade A Office Rental Index Metro Manila CBDs Grade A Office Rental Index 3% 16 14 2% 12 3Q 27 = 1 12 1 8 1% % -1% ' sq m (GLA) 8 6-2% 4 4-3% 216 217F 218F 219F 22F MARKET IN MINUTES Among submarkets, Quezon City had the highest vacancy rate after another quarter of subpar performance. We saw a similar performance on rents after growth crawled by.5% YoY in 1Q/217. Despite rentals being pulled down by vacancies, this was still an improvement from the negative growth posted in the previous two quarters. The considerable volume of new supply is expected to maintain the double-digit vacancy rates in the coming quarters. However, the current pre-leasing activity in Quezon City should alleviate any abrupt rise in vacancies. 8
1Q 217 Bay Area GRAPH 23 GRAPH 24 7 Bay Area Grade A Office Stock Bay Area Grade A Office Vacancy Rate 35% 25 Bay Area Grade A Office Supply Bay Area Grade A Office Take-Up 6 3% 2 ' sq m (GLA) 5 4 3 2 25% 2% 15% 1% ' sq m (GLA) 15 1 5 1 5% 29 21 211 212 213 214 215 216 217F 218F % -5 29 21 211 212 213 214 215 216 217F 218F GRAPH 25 Rental Performance GRAPH 26 Development Pipeline 1, Bay Area Grade A Office Rental Growth YoY Bay Area Grade A Office Rental Rates 2% 25 8 16% 2 Php / sq m / month 6 4 12% 8% ' sq m (GLA) 15 1 2 4% 5 211 212 213 214 215 216 1Q217 % 216 217F 218F 219F 22F MARKET IN MINUTES The Bay Area had the lowest vacancy rate among business districts. The completion of Filinvest Cyberzone Towers 2 and 3 added substantial amount of office space, but vacancies remained tight as the buildings were immediately leased out. Occupancy remained high in this submarket, and rental rates continued to normalize after growing by 3.6% YoY. We still expect double digit vacancy rates in the Bay Area this year notwithstanding the commendable market performance in 1Q/217. Market absorption should sustain its performance in the coming quarters, but the 259,6 sq m of additional GLA in the next 12 months is still expected to weigh heavily on rentals. kmcmaggroup.com/research 9
Metro Manila Office Briefing Other Submarkets Greater Ortigas currently hosts 287,7 sq m of office stock and is expected to supply around 155, sq m of additional office space in the next 12 months. The bulk of the current stock is concentrated in the Robinsons Cybergate Center while upcoming supply will be positioned in the emerging microdistricts of Greenfield District and Capitol Commons. For the other submarkets, the first three months were quiet with no new supply, but 217 is anticipated to be a busy year with key additions to stock in the latter quarters. Robinsons Land is projected to complete three office buildings Cyber Sigma in McKinley, with Exxa and Zeta towers in its Bridgetowne township in the C5 Corridor. In addition, Megaworld will complete its other two West Campus buildings in McKinley while Ayala Land s two Circuit Corporate towers will add 72, sq m in Makati Fringe. These submarkets are expected to grow substantially in supply in the coming years to accommodate the expanding outsourcing sector that prefer better affordability outside the established business districts. GRAPH 27 Stock by District ' sq m (GLA) GRAPH 28 Development Pipeline by District ' sq m (GLA) 1,8 1,5 1,2 4 3 2 9 6 3 McKinley Office Stock Makati Fringe Office Stock C5 Corridor Office Stock Greater Ortigas Office Stock 29 21 211 212 213 214 215 216 217F 218F 219F 22F McKinley Office Supply Makati Fringe Office Supply C5 Corridor Office Supply Greater Ortigas Office Supply 1 216 217F 218F 219F 22F Definition of other submarkets These submarkets are not included in the aggregate Metro Manila figures MCKINLEY MAKATI FRINGE C5 CORRIDOR GREATER ORTIGAS The McKinley submarket is located south of Bonifacio Global City, covering McKinley West and McKinley Hill. Rockwell Center, Century City and Circuit Makati, as well as areas outside the Makati Central Business District, comprise the Makati Fringe submarket. C5 Corridor covers a stretch of the C5 Road from Quezon City to Pasig City. Located north are Eastwood City, Nuvo City, Circulo Verde, Bridgetowne Business Park, and the upcoming Ayala- Eton joint-venture project; farther south are Frontera Verde and Arco Via. The Greater Ortigas submarket predominantly covers the cities of Pasig and Mandaluyong which include Capitol Commons, Portico, Robinsons Cybergate Center and Greenfield District and the areas of Quezon City that surround the Ortigas Center. 1
1Q 217 PROJECT FOCUS ARTHALAND CENTURY PACIFIC TOWER LOCATION BONIFACIO GLOBAL CITY GRADE Premium TURNOVER DATE Q4 217 GROSS LEASABLE AREA 29,935 sq m NO. OF FLOORS 3 FLOOR PLATE (GLA) 1,55 sq m - Low Zone 1,6 sq m - High Zone HANDOVER CONDITION Warm Shell PEZA Yes 24 / 7 CAPABILITY Yes BACKUP POWER 1% This is the ArthaLand Century Pacific Tower, a premium office building at the corner of 5th Avenue and 3th Street. The project is located at a prime block, just across Shangri-La at the Fort, the Central Square Mall, and near the future Philippine Stock Exchange building. The premium grade building is designed by SOM New York, the same group that penned the One World Trade Center in New York and Burj Khalifa in Dubai. In all aspects, this project, that is designed to hold the headquarters of multinational companies, is fully green. It is on target to achieve dual green building certification from both LEED and BERDE. In fact, it is already LEED pre-certified Gold and won the 216 Philippines Property Award as the Best Green Development in the country. GRAPH 29 12-month Supply Forecast by Building 7 6 5 ' sq m (GLA) 4 3 2 1 One Townsquare Place South Park Corporate Center Filinvest Axis T1 Vector Three imet The Biopolis DoubleDragon Plaza T1 Vista Hub Menarco Tower Inoza Tower The PSE at One Bonifacio World Plaza Ore Central Alliance Global Tower Rockwell Business Center Sheridan T1 Insular Life Building Circuit Corporate Center 2 Eight West Campus Six West Campus Cyber Sigma Vertis North Corporate Center T1 DoubleDragon Plaza T2 One Park Drive The Curve High Street South Corporate Plaza I The 3th Corporate Center Circuit Corporate Center 1 IBP Tower Vertis North Corporate Center T2 Nexgen Tower Eastfield Center DoubleDragon Plaza T4 DoubleDragon Plaza T3 ArthaLand Century Pacific Tower Zeta Tower Exxa Tower Rockwell Business Center Sheridan T2 Ortigas Technopoint Two Quantum ThreeE-ComCenter City Gate Phase 1 BPO 2Q 3Q 4Q 1Q 217 218 Makati CBD BGC Ortigas Center Alabang Quezon City Bay Area Greater Ortigas C5 Makati Fringe McKinley kmcmaggroup.com/research 11
Metro Manila Office Briefing KMC Savills, Inc. Please contact us for further information Michael McCullough Managing Director michael@kmcmaggroup.com Antton Nordberg Director Research & Consultancy antton.nordberg@kmcmaggroup.com Yves Luethi Executive Director Marketing and Landlord Representation yves.luethi@kmcmaggroup.com Melo Porciuncula Executive Director Investment Services melo@kmcmaggroup.com Rosario Carbonell Executive Director Tenant Representation rosario@kmcmaggroup.com Gerold Fernando Executive Director Tenant Representation gerold@kmcmaggroup.com Francis Fuellas Director Property & Facilities Management francis@kmcmaggroup.com Lana Osmeña General Manager - Cebu lana@kmcmaggroup.com Since 29, KMC Savills, Inc. has provided clients with award-winning real estate services. KMC Savills delivers world-class service strengthened with local market expertise. With over 1 employees involved directly in transactions for office, investments, industrial & hotel locators, as well as residential properties, KMC Savills is a full-service real estate firm that has successfully become the leading local firm in the Philippine real estate services industry. This bulletin is for general information purposes only. Whilst every effort has been made to ensure its accuracy, KMC Savills accepts no liability whatsoever for any direct or consequential loss arising. The bulletin is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from KMC Savills. 12