Manila rentals, capital values bottoming out

Manila’s CBD office market has gone through a bottoming-out phase in July 2001, with capital values hitting trough at a weighted average of $759 per sq m – nearly 40 percent off the peak level – said international property consultant Colliers Jardine in its latest report," Philippine Property Market Overview".

"While we believe that office capital values have largely bottomed out, a rapid recovery is not foreseen," said Nigel Lucas, Managing Director of Colliers Jardine in the Philippines. He added that, "even if there is any capital appreciation in the next 12 months, it would most likely to be too insignificant to move the market."

Property values for Premium Grade A office premises further softened by 1.5 percent QoQ to an average of $1,220 per sq m. Measured from peak in 3Q 1997, this represents a 37 percent correction. As for Grade A capital values, a 6.3 percent QoQ decline to an average of $844 per sq m has been recorded. Grade B office space is estimated at an average of $657 per sq m, down by 5.4 percent QoQ.

Manila’s CBD weighted average office rent stood at $6.5 per sq m per month in July 2001, representing a 7.2 percent decline QoQ from $7 per sq m per month and a 50 percent correction from the peak of $12.9 per sq m per month. Mr. Lucas said: "Like capital values, CBD office rentals in Manila have largely bottomed out. However, we expect rents across all grades to remain at current levels, until oversupply pressures subside."

The current development cycle will come to an end soon, as only two buildings – GT Tower and JG Summit Centre – have been slated for completion in the remainder of this year, adding nearly 62,000 sq m to the total office inventory in Manila’s CBD. Meanwhile, the "moving 12-month supply growth has dwindled from 12 percent in 1Q 1999 to a mere eight percent in the past quarter, with a further decline to the 2.4 percent forecast for the next 12 months."

Despite the lack of new supply, the CBD office vacancy in Manila has increased to 16.2 percent from 15 percent of the previous quarter. Reflecting the weak market conditions and in line with the downgraded economic forecasts, Colliers Jardine has revised its demand projections for the year. "Taking into account a revised GDP growth of 2.3 percent, we are now project a full-year take-up of 72,000 sq m and a year-end vacancy of 16 percent. This contrasts with our earlier projections of a take-up of 93,000 sq m and a year-end vacancy of 15 percent, based on the previous forecast of a 3.2 percent GDP growth," said Mr. Lucas.