Pre-Leasing and Energy efficiency is already the trend in the Philippine office space

Its nice to know the commercial property is booming so much pre-leasing is now common. At the same time, energy efficient buildings are becoming the norm for new office space.

Office Space Demand At All-Time High, Pre-Leasing Is Back – CBRE

June 20, 2012, 4:18pm

MANILA, Philippines — Demand for office spaces in major business districts in the country has never been this robust with pre-leasing arrangements now accounting for an all-time high average of 44 percent of total office space supply, a property management expert said.

Rick Santos, chairman and CEO of the local unit of global leading property management company CBRE, revealed in a press conference for its regular update in the property space market that pre-leasing, which now accounts for an average of 44 percent, accounted for only 10 to 15 percent of total annual supply in 2007, which is the previous peak in the property market or during the pre-financial crisis.

“The reality now is this is the all-time high,” Santos said noting that during the pre-crisis period the available annual office space supply then was only between 300,000 to 400,000 square meters as against the current 500,000 square meters of office supply.

“The Philippines is no longer the sick man of Asia, it is now the sweet spot for investors,” he said stressing the country is experiencing the “best real estate market in the Philippines in the last 20 years.”

Occupancy rates during the first quarter hovered at 96 percent, Santos said.

Propelling the growth is the country’s robust GDP at 6.4 percent in the first quarter, the robust BPO sector, political stability, the democratization of the housing sector, among others.

Pre-leasing or pre-commitment means the tenant and landlord entered into an agreement that the tenant will occupy a particular space

in the soon to be completed building. This could be covered by a letter of intent of the prospective client, but no advance rental is paid.

Pre-leasing activity happens within six months prior to building completion.

“Pre-leasing is back. The office sector goes from strength to strength with a surge of pre-leasing commitments in the central business districts,” Santos added.

John A. Corpus, CBRE director for global corporate services, explained that the last time pre-leasing of office spaces occurred in the country was in 2007 when the economy posted robust growth. Office spaces were committed in 2006 to 2007 when build to suit offices for BPOs were constructed but this was cut short by the 2008 global financial crisis leading to high office space vacancy rates.

Corpus said the office space supply in the major business district is estimated at 520,000 square meters for this year alone and about 580,000 units in 2013 and more to come in 2014 or an average of 500,000 square meter of office space supply annually.

For the Makati Central Business District alone, the Glorietta 2, which would be fully completed by the second quarter this year has been 100 percent pre-leased as well as Greenbelt 2, which is expected to be fully completed by the first quarter of 2013, he said.

The Zuellig Building, the first certified green building in the country to be fully operational by third quarter of 2013, is already 45 percent committed.

Office buildings with completion dates this year up to 2013 in other business districts such as Fort Bonifacio, the fastest growing business district in Metro Manila, the Ortigas-Mandaluyong business district, the Bay Area, and the Quezon City area have higher pre-committed office spaces.

Corpus also explained that normally companies resort to pre-leasing arrangement because of cost consideration, need to secure space, flight to quality, expansion and consolidation of offices.

Most of the top-end office spaces have been reserved by foreign financial institutions, multinational companies and, BPO firms that are expanding operations in the country.

In terms of office space rental, CBRE reported that Makati still remains the lowest as it is 10 times lower than that of Hong Kong lease rates.

“We are still the cheapest and I don’t see why investors will not come here, the wave the best quality, technology, good buildings and political stability,” Corpus said.

Rental in Makati has gone up to P830-P850 per square meter rate from P810 in the third quarter of 2011, which is still tolerable, he said.

“Landlords are trying to push rental rates higher at P1,000 per square meter but if the rates will not hit this level it is because supply is also catching up with demand,” Corpus said.

Fort Bonifacio office space rental is at P750 per square meter while Alabang is at P540 and Quezon City and Ortigas at P570 per square meter.

In terms of the residential sector, Victor Asuncion, CBRE Executive Director for global research and consultancy, reported of 143,123 upcoming units as of June 2012 and two-thirds of this supply come from Makati, Quezon City and Manila areas.

This sector is also moving towards the broad-based market of P40,000 to P80,000 per square meter price, Asuncion said.

The P80,000 to P100,000 per square meter housing unit are also getting a lot of attention and accounts for as much as 42 percent of total industry supply.

Other residential developments in the major cities outside Metro Manila like Cebu, Davao and Iloilo are also getting their fair share of the market and strong take up rates.

“There is no supply glut in the residential development sector,” he said.

Santos further noted that this robust growth in the housing sector is buoyed by the democratized industry where bank lending rates are still on the downward trajectory.

“The liquidity in the market enables developers to provide more affordable payment terms to buyers. Low cost borrowing are likewise spurring development expansions in the residential/housing sector,” Santos said.

According to Santos, the “Philippine property market is turning green into gold” noting that green buildings, where there are at least five LEED Certified buildings are future proof of investment.

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