EVEN though construction delays continue to hound the real-estate industry, particularly the office market, the year 2017 still has the highest supply of office space in Philippine history, based on Pronove’s Metro Manila Second Quarter of 2017 Office Market Overview report.
Pronove Tai International Property Consultants CEO Monique Cornelio-Pronove said there are five buildings or 130,000 square meters (sq m) supposed to be completed in the second quarter (Q2) of this year that have been moved to the next three months.
“That is around a 244-percent increase from the supply in 2016 to the supply in 2017. The reason for that is really the delay [in construction],” she said.
In the first quarter of this year—with a projected supply of 1.1 million sq m of office space—40 buildings were slated to be completed in 2017. At that time, there were 13 buildings approved by the Philippine Economic Zone Authority (Peza), 20 were under process and 7 were non-Peza buildings.
For the Q2, the office market added 100,000 sq m of space to 1.2 million sq m in the projection. This will add 46 buildings from April to June that will be completed in 2017. Two will be in Makati and four from the Bay Area (Pasay and Paranaque).
There are nine Peza-approved buildings given in the past three months, with 11 under process, eight new applications, and five non-Peza buildings.
“While there are construction delays, there are other buildings actually slated to be completed in 2018 that we felt have been fast tracked and can move to the fourth quarter [Q4] of 2017. So that’s still in the future,” the top executive said.
Existing stock of “all grade” buildings in the metropolis has, so far, aggregated to 9 million sq m of office space as of April to June this year.
From this number, around 8.9 million sq m (99 percent) of office towers are located in the eight major districts, such as Makati, Taguig, Ortigas Center, Quezon City, Mandaluyong, Bay Area and Muntinlupa.
In the minor districts of Pasig and San Juan, there are around 70,121 sq m (1 percent) from April to June of this year.
By the end of 2017, Pronove is looking at around 9.7 million sq m of stocks of office space, adding around 700,000 sq m to the current inventory.
She said: “We’re growing the stock by around 14 percent from 2016 to end of 2017.”
The three major districts accounting for the total supply are Makati at around 3.3 million sq m, or 34 percent; Taguig, 1.9 million sq m, 19 percent; and Ortigas, 1.6 million sq m, 16 percent.
The property consultant company expects 778,000 more sq m of space will be finished in the second half of the year. This represented an increase of around 61 percent from the first half of 2017.
In terms of the new supply, but will be coming on line by the second semester, Bay Area actually has the most supply that will be completed with 308,000 sq m.; Taguig will be the second at 135,000 sq m; and Makati will be the third at 92,000 sq m.
The fastest-growing business district continues to be Bay Area at 41-percent growth; Taguig, 12 percent; and Mandaluyong, 8 percent.
By and large, limited supply and strong demand characterize the real-estate market in the metropolis.
From Q1 basically, even despite the increase in completed buildings delivered in Q2, there’s still a 4-percent vacancy. That’s around 337,000 sq m of space available for occupancy.
“Anything below 5 percent is unhealthy in our industry because it does not allow for companies to move. If I need to expand, I don’t have a place to expand in my building. So I have to go outside to another building,” Pronove said.
“Right now, the situation is there’s no space where I can move in to. I will have to wait for future buildings to be completed,” she added.
Most of the vacancy came from Muntinlupa City at 12 percent; Quezon City, 9 percent; Mandaluyong, 8 percent; Taguig City, 3 percent; Bay Area, 3 percent; Makati, 2 percent; and Ortigas Center, 1 percent.
Lease-wise, Grade A buildings in Makati during the three-month period ending June 2017 had an average rate of P1,390 per sq m. per month, or a 4.5-percent increase. In Taguig it’s around P1,125 per sq m per month, or a growth of 5.8 percent. The difference between the two office districts is around 24 percent.
“Makati continues to be the most expensive. It is still the financial district. You have a lot of the headquarters of financial corporations here,” the CEO said.
Preleasing transactions remain robust during the year’s Q2. The demand drivers are information technology-business process management, offshore gaming, and flexible workspaces.
“For key takeaways, it was a year of disruption. There were a lot of changes. There were noises. We’ve actually seen a slower GDP growth year-on-year from 6.9 percent in the first quarter of 2016 to 6.4 percent in the first quarter of 2017,” Pronove said.
“But despite all of these noises, basically from the real-estate perspective, investor confidence still remains high. There has not been any ‘wait and see’ slowdown in terms of investing in the Philippines—both from local and foreign. We have not seen any stoppage in the construction activity, despite the fact that there are construction delays because we’re lacking manpower,” she said.
Citing the data from the Bureau of Local Employment, Pronove told the BusinessMirror the total number of construction workers nationwide is 1.3 million at present.
By 2022 the entire industry needs around 200,000 more. Given that the current labor supply in the construction sector just for this year stands at about 80,000, an additional 120,000 must fill the void in the next five years.
“There are a lot of companies that are looking for construction people, but then again, when you do the reform, that’s more difficult. There’s a certain skill that is lacking. So that’s what’s plaguing our industry at the moment,” Pronove said.
The lack of work force in the property market, if not addressed immediately, will eventually affect the government’s infrastructure projects in line with President Duterte’s “Build Build Build” initiative.
“If we don’t have the people to build buildings anymore, what more of infrastructure, so we do have to look at that also,” she said.
One way to do it was to tap those that were taken out from other industries like the mining, the CEO said. She said there are developers already going to the provinces to train locals to become construction workers.
The Technical Education and Skills Development Authority has been asked also to start training people, including farmers, in the provinces, she added.
“There’s a real need, so there’s flexibility. Again that is happening in all industries,” Pronove said.
Pronove Tai International Property Consultants is a 100-percent Filipino-owned company engaged in real-estate consulting since 2002 in 19 principal and 41 regional cities nationwide.
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Developers should also look into other Cities in Metro Manila for new Business districts and redevelop other existing sub CBD’s where they can build additional supply of Grade A office buildings. Binondo-Sta Cruz in Manila, Monumento in Caloocan, Fairview/Greater Lagro in Quezon City, Marcos Hi-way corner Imelda Avenue in Marikina City.