Table of Contents
MANILA, Philippines, August 20, 2019 — Real estate services firm, Colliers International Philippines, reports that the average office rental rate in Metro Manila is seen to rise by 6% yearly until 2021. This trend is driven by competition for accredited zones of the Philippine Economic Zone Authority (PEZA) amid the moratorium imposed on the processing of the new ecozones.
Broadening the Demand Base
The ban imposed on new economic zones within Metro Manila expects to slow down the expansion of outsourcing firms in the National Capital Region and developers are advised to cater to the demand from traditional and BPO (non-business process outsourcing) firms.
In its quarterly research titled: “Broadening the demand base, traditional occupants and offshore gaming further diversify Manila office market.” Colliers said they project Metro Manila’s average rent rising by 6% on a yearly basis until 2021, which is higher than their Q1 forecast of 5% because of the short supply of PEZA-approved office spaces.
The issuance of Administrative Order 18 last June finalized the national government’s decision to stop approving PEZA applications in Metro Manila would lead to narrowing the expansion of outsourcing firms. Colliers added that the dip in absorption would be offset by demands from traditional occupants such as organizations related to construction, engineering, flexible work space operators, government agencies, legal, and offshore gaming firms.
Colliers recommends for developers to be aware of the demands from non-outsourcing companies that are not eligible for incentives given to ecozone locators. “Developers should specifically watch out for the requirements of insurance, fintech (financial technologies), engineering, and construction firms as well as flexible workspace operators,” they added.
Closer Look: Outsourcing Firms’ Deals for Office Space
Outsourcing firms’ deals for office space in the first half of 2019 reached 199,000 square meters which are 45% lower compared to the 361,000 square meters in the same period the previous year. This is amid the slower approval of ecozone applications within Metro Manila and concerns on the proposed second package of the comprehensive tax reform program aiming to gradually cut the corporate tax income rate down to 20% from 30%, and remove the 5% tax on gross income earned incentive enjoyed by PEZA-locators.
Colliers are advising developers with pending ecozone applications to push for immediate approval to address the short office supply in Metro Manila because demands for office space from traditional and non-outsourcing firms which are involved in construction, engineering, flexible work space, food and beverage, healthcare services, and information technology industry are also on the rise backed by a strong economic growth.
Developers should also take a closer look at the status of pending bills aiming to ease foreign ownership restrictions in construction, retail, telecommunication, and transportation as the enactment of such would lead to an increase in office space absorption.
Colliers is advising outsourcing firms to consider locating PEZA buildings outside Metro Manila, particularly in locations such as Cebu, Davao, and Iloilo.
On the other hand, cost-sensitive and non-outsourcing firms such as government agencies and start-ups should consider building in Quezon City where office leases are more affordable compared to Fort Bonifacio and Makati City.
Strong Demands from Offshore Gaming Firms
There is, however, strong demand from offshore gaming firms with transactions reached 274,000 square meters in the first semester. It is expected that offshore gaming firms would exceed 300,000 square meters this year citing new business hubs which are more accommodating of their operations.
Colliers expects Metro Manila’s leasable office stock to reach 14.3 square meters in 2021 which is 31% higher compared to the 10.9 square meters the previous year. It is said that about 54% of the new supply of the 14.3 square meters would be in the Bay Area, Fort Bonifacio, and Ortigas.
They are also advising offshore gaming tenants to explore the areas of Ortigas Center and its fringes. With the rise of offshore gaming firms in the country, these firms are expected to take up most of Metro Manila’s office spaces by the end of this year.
On the other hand, Philippine Senator Joel Villanueva intends to file a resolution in the 18th Congress to closely scrutinize the regulation of offshore gaming firms in the country. He is also concerned about the increase of office rental in Metro Manila due to the increasing demands for spaces from these firms.
