Rents up, growth slowing in Manila property sector

Published on Wednesday, 28 November 2012 22:21

Written by Dennis D. Estopace / Reporter

RENTS in Grade A and prime retail space in Metro Manila are rising slightly, according to property broker Jones Lang LaSalle.

In its “Asia Pacific Property Digest: Third Quarter 2012,” the firm noted that nine other cities in the region also had rising rents in Grade A office space, with four of these in India and two in Australia. The other cities are Jakarta, Bangkok and Tokyo.

“Average office rents in 3Q12 [third quarter of 2012] grew slightly by 0.3 percent QOQ [quarter-on-quarter] to P9,366 per square meter [sq m]  per annum as growth slowed overall due to the downward pressure exerted by the large volume of future supply,” said the report’s section on Manila’s property sector.

The report added that “average capital values grew slightly stronger than rents, with figures in 3Q12 up by 0.6 percent QOQ to P85,978 per sq m.”

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But the property broker downplayed the impact of an upward slope in prices.

“Despite there being no significant transactions recorded in the quarter, prices remained unaffected by supply pressure and continued to be buoyed by positive investor sentiment. Consequently,

investment yields in the quarter were stable at 10.9 percent.”

The supply pressure has put a damper on price spikes, according to Jones Lang LaSalle.

It noted that the completion of two buildings in Bonifacio Global City and one in the Makati commercial and business district (CBD) added 87,500 sq m of office space to the total existing stock.

But, “these developments were observed to be almost fully taken up prior to completion.”

“Total net absorption in 3Q12 increased to 83,100 sq m due to the strong precommitment levels in newly completed developments, as well as stable office demand.”

Jones Lang LaSalle said the slight increase of vacancy rates to 3.7 percent as coming from the departure of selected tenants from existing buildings.

“The majority of the take-up remained concentrated in the BGC, host to two of the new office buildings completed in the quarter. Significant lease transactions in the period included an O&O [offshoring & outsourcing] firm taking up 8,600 sq m in the SLC building in the Makati CBD and a manufacturing firm leasing 9,800 sq m in Net Lima in the BGC, reflecting the relatively stable demand for large office spaces.”

Jones Lang LaSalle said it expects office supply to “slightly” outpace demand in the next 12 months.

The report’s section on the Philippines noted that around 272,000 sq m of office space is expected to be completed this quarter, “representing almost 71 percent of the total projected stock for the current year.”

Additionally, the broker said it expects approximately 214,000 sqm of office space to enter the market between the first and third quarter next year. Majority of these space would be in the BGC.

On the other hand, Jones Lang LaSalle said rents in the residential property segment has “slightly declined,” as “net absorption” weakened in the third quarter of this year.

“With only one residential development added to the market’s stock, net absorption in the quarter dropped to 149 units from an estimated 1,700 units in 2Q12. Nevertheless, leasing demand continued to be sourced mainly from the expatriate employees of MNCs and O&O firms.”

The sapped supply and increasing competition has also dampened rent.

“The large volume of new condominium developments entering the market is heightening competition and beginning to affect the landlords’ bargaining positions,” the report said.

It noted that “net effective rents in the luxury condominium market saw a slight decline during the quarter, dropping to P7,956 per sq m per annum from P7,980 per sq m per annum in 2Q12.”

However, Jones Lang LaSalle said this “slight dip in rents could be temporary as the strong market activity usually experienced toward year-end may push rents upward.”

The report noted that residential stock is forecast to increase by 3,100 units this quarter, bringing the total new supply for this year to 6,200 units.

But “while this is an improvement over the total new supply of around 4,100 units seen in 2011, the figure is less than what was projected earlier for this year’s supply.”

Jones Lang LaSalle said it sees 11,000 units entering the market over the next 12 months.

Like in the past, the broker sees remittances from overseas Filipino workers as propping up residential demand.

“Rents and capital values may exhibit growth in the following months, on the back of projected increased market activity in 4Q12. However, the growing residential stock will likely exert downward pressure on the growth of rents and capital values next year.”