Christmas has ended and I’m sure all of us are looking forward to a prosperous 2013 for our real estate industry.

We already discussed in the first part about the residential sector. Today, we will discuss the commercial sector that includes retail and offices.

According to Roque Sorioso, commercial spaces exhibited sustained growth from the previous quarter, fuelled by continuous remittances from overseas workers and IT-BPO industry expansion.  Other, more traditional market segments also contributed to demand pull as growth from the first quarter to the third quarter was characterized as broad-based:  health, education, tourism, construction, electronics and communications all contributed to buttress demand.


Prof. Roque Sorioso. (Photo source from Prof. Sorioso's facebook)

Prof. Roque Sorioso.
(Photo source from Prof. Sorioso’s facebook)

ROQUE SORIOSO: Rental rates have been recovering since 2010 and are now only about 15% less of pre-2008 levels.  At this rate, rental rates for office spaces will be back to normal by the end of 2012 or early 2013, barring any change in demand factors.

Occupancy rates are also up with new leases being re-negotiated at either the same or slightly higher pricing.  This occurs at the aggregate level reflecting increasing demand over limited available space in the short run.  The high occupancy rates and the underlying positive economic factors suggest that demand will continue to be relatively high for the rest of 2012 through early 2013.

JONES LANG LA SALLE LEECHIU: The demand coming from offshoring and outsourcing (O&O) firms and consolidation of office space by some MNCs contributed to the growth of demand in the Makati CBD and Bonifacio Global City (BGC).

Total net absorption in 3Q12 increased to 83,100 sqm due to the strong pre-commitment levels in newly completed developments, as well as stable office demand. Meanwhile, vacancy rates inched up slightly to 3.7% as selected tenants moved out 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 firm taking up 8,600 sqm in the SLC building in the Makati CBD and a manufacturing firm leasing 9,800 sqm in Net Lima in the BGC, reflecting the relatively stable demand for large office spaces.

Three new office developments completed in 3Q12, namely Science Hub Tower 2 in McKinley Hill, Net Lima in the BGC and the refurbished SLC Building in the Makati CBD. Together, these three buildings added 87,500 sqm of office space to the total existing stock. Furthermore, these developments were observed to be almost fully taken up prior to completion.

Mr. Claro Cordero of Jones Lang La Salle Leechiu.

Mr. Claro Cordero of Jones Lang La Salle Leechiu.

Average office rents in 3Q12 grew slightly by 0.3% q-o-q to PHP 9,366 per sqm per annum as growth slowed overall due to the downward pressure exerted by the large volume of future supply.

Average capital values grew slightly stronger than rents, with figures in 3Q12 up by 0.6% q-o-q to PHP 85,978 per sqm. 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%.

Around 272,000 sqm of office space is expected to complete by 4Q12, representing almost 71% of the total projected stock for the current year. Additionally, approximately 214,000 sqm of office space is forecast to enter the market between 1Q13 and 3Q13, the majority in the BGC.

The large volume of future office supply may outpace demand slightly over the coming months. Nevertheless, demand for office space is forecast to remain buoyed by the sustained entry of O&O firms and expansions, supporting moderate growth in rents and maintaining vacancy rates at manageable levels. In addition, the relatively healthy pre-commitment levels of upcoming office developments in 4Q12 are projected to help support demand in the coming months.

PINNACLE REALTY: The office market continues its strong push across the different districts posing increases in rent and occupancy levels. BPO companies continue to comprise the bulk of office space occupiers. The high demand among these companies has led to the resurgence of the “pre-leasing” market which took a hiatus a few years back.

Not to be outdone are the traditional office space occupiers. A few multinational companies were known to have taken up space in newly constructed buildings in both the CBD and the Fort Bonifacio District. Despite the transfer, inquiries on the vacated have been posted and will more than likely be taken up in a short period of time.

The office market will remain bullish mainly due to the strong demand coming from the BPO sector. Those involved in the BPO industry belie the claim of reelected US President Barrack Obama of bringing offshored jobs back to the USA. Companies will still continue to offshore and outsource jobs as a means to stay afloat and that the recovery of the US Economy and the rest of Europe is not seen to happen anytime soon. This strengthens the likelihood that the buildings under construction across the different business districts across the metropolis will readily be taken up.

The strength of the office market has likewise had a positive effect on the other sectors of the real estate market, in particular the residential and retail markets. It can be seen in the different business districts that office building developments are complemented by the construction of new residential condominiums and hotels. Future occupants of these office buildings are expected to increase the demand for accommodation facilities hence the construction of new residential condominiums and hotels.

Similarly, retail and shopping facilities, in these areas are expected or have recently undergone some form of expansion or renovation. The additional traffic to be generated by the occupants of these office buildings is expected to add to the target clientele of the establishments within these facilities. As mentioned earlier, some developers have gone as far as integrating BPO space within their retail facilities such as in the case of Ayala with Glorietta, SM with Mall of Asia and Robinsons with Robinsons Otis just to name a few.


More and more people are shopping at Divisoria for a cheaper and bargained goods.(Photo source: pinoyprogress.com)

More and more people are shopping at Divisoria for a cheaper and bargained goods.
(Photo source: pinoyprogress.com)

ROQUE SORIOSO: Robust demand for retail spaces is sustained by OFW family remittance expenditures and IT-BPO growth.  This translates to strong demand for retail spaces selling mass consumables like supermarkets for OFW families and electronics and apparels stores for offshoring company employees.  New retailers that cater to the market profile of these two demand drivers generally thrive.

Demand for retail spaces was generally consistent in the first quarter of 2012 and carried over into the second quarter of 2012.  Price increase was relatively flat, with increases observed to range from 0% to 5% in new contracts.

Capacity utilization has been high in prime retail spaces but tepid in other categories.  High occupancy rate is location-specific and high pedestrian and vehicle traffic is not an automatic indicator for high occupancy levels.

In general, the prime retail spaces have better demand-management systems compared to lower-tier but high-traffic retail spaces.  Prime retail spaces typically exhibit less volatility in occupancy rates in the previous and current quarter unlike the non-prime and old space segments.  This differentiation is a holdover from the impact of the 2007-2008 global financial crisis, which was only felt in the retail sector in late 2008 and 2009.  OFW remittances tend to increase during crises in the short run and the decrease in remittances usually manifest with a lag of a 8 to 24 months.  Similarly, IT-BPO businesses are positively-affected by overseas economic depression in the short term.  This lag is why the retail sector is the more resilient segment of the commercial property sector.

PINNACLE REALTY: The retail property market has continued to be a strong performer in the industry. This strong demand has pushed developers to build new shopping centers and retail outlets in different locations across the metropolis. In addition, several renovation and expansion projects in the different sites of the metropolis are being undertaken with some having been completed and expected to be operational in time for the Christmas shopping season. Even as the additional space becomes available, rents are not seen to go down anytime soon as these readily taken up.

Traditional shopping centers such as the Binondo-Divisoria area is undergoing some major facelift. Development in the area is being spearheaded by developer Megaworld with the City Place and Lucky Chinatown Mall in Binondo and Prime Orion with the Tutuban Mall Redevelopment. Both developers want to recreate the area to be a total shopping destination wherein great bargains and luxury items can be acquired and restore some of its lost glory as the premiere shopping destination.

RAMON C.F. CUERVO III: Earlier this year, I forecasted about the urban renewal developments in downtown Manila, Pasay, QC, and other areas in Metro Manila. And this development will help the commercial sector.

Mr. Ramon Cuervo delivering his speech during the APREA Forum. (Photo source: APREA)

Mr. Ramon Cuervo delivering his speech during the APREA Forum.
(Photo source: APREA)

I even put my 2012 bet to developers who are creative, innovative,  and think out of the traditional box. So my advice was to focus on specific areas of the Property Sector –those that are service and people oriented. This includes the commercial, retail, and office sectors, particularly the BPO industry.

For the retail sector, I forecasted the growing demand for commercial/retail town/neighborhood centers. So many malls and other commercial centers were opened this year. And I believe that Divisoria and other traditional shopping centers in Metro Manila will be re-developed to make it more accessible and attractive for the Filipino and foreigners alike who are looking for bargain finds.

For the BPO or what the majority would associate with Call Centers, I forecasted that BPO Centers anticipate the need to face up to new challenges prompted by the American policy discouraging “outsourcing of work and manpower” from other countries. The U.S.A.’s business outsourcing requirements are primarily obtained from Mexico, India and the Philippines.

Today, the Philippines ranks foremost amongst BPO providers.  Many American companies have been outsourcing their call center services to the Philippines and India where wages are significantly lower than in the U.S.

BPO has seen its high growth this year and will continue next year because of the improving Philippine economy. For other office spaces aside from BPO, it also has a great year as more and more international firms are relocating to the country, in which foreign investors branded as the “New darling for investments.”

For 2012, the retail and office sectors continued to flourish because of the Philippine economy.

Sources of Data:

  • Roque Sorioso Jr.
  • Jones Lang La Salle Leechiu
  • Pinnacle Real Estate Consulting Services, Inc:
  • Institute for Philippine Real Estate Appraisers (IPREA)
  • BusinessWorld  (various issues)


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