Metro Manila office rentals seen dropping

MANILA, Philippines - Office rents in Metro Manila’s major business districts are expected to drop between three to five percent in the next 12 months as a slew of new office supply come in, real estate services firm Colliers International Philippines said.

Colliers, in its latest report, said the influx of new supply would dampen office rents in major business districts in Metro Manila in the coming months after it rose an average 1.8 percent during the third quarter of the year.

For the July to September 2015 period, Colliers reported that premium buildings in the Makati central business district increased rates almost four percent from the previous quarter as extremely low vacancy rate for the segment pushed rates higher.

Rental growth rates for both Grade A and Grade B offices, meanwhile, were much stable at 1.23 percent and 1.39 percent, respectively.

“However, the strong leasing activity experienced throughout much of the year is expected to taper as the huge influx of new supply is expected to impact overall vacancy,” Colliers said.

The real estate services firm said it has already observed some developers close leasing deals for new buildings with net effective rents that are significantly lower than their headline rates.

“This is likely due to the developers’ recognition of the high levels of upcoming supply in the next couple of years, and they would rather put contracts in place at lower rates today rather than risk having their spaces vacant for an extended period of time. Thus, Colliers sees rents to start correcting on a wider basis through 2016,” it said.

For next year, Colliers said it expects 733,765 square meters of net usable area added in Metro Manila’s office sector, higher than the 503,231 square meters of expected new supply this year.

As a result, Colliers said office rents in Makati CBD and Alabang are seen declining three to five percent, Pasay City four to five percent, Fort Bonifacio five percent, and Ortigas Center and North EDSA three to four percent.