Low vacancies to remain

Don’t be fooled by the new construction activities that seem to occur in every corner of the metropolis.

According to a just released report by KMC Savills, Metro Manila recorded no new office space supply in the fourth quarter of 2016 from its central business districts. For the whole of last year, new supply in Metro Manila was lower than expected and only 311,700 square meters of new office supply was completed due to several building completions pushed back to later quarters, it said.

It noted that although net absorption was lower at 345,800 sqm in 2016 compared to the 443,300 sqm set in 2015, it still exceeded new deliveries indicating supply-side bottlenecks rather than lack of demand. As a result, vacancies continued to decline and resulted to a lower vacancy rate for Metro Manila of  two percent by the end of 2016, it added.

KMC Savills expects construction delays to expand Metro Manila’s pipeline this year and next year, at almost one million square meters each year, and that in the first quarter of 2017, as much as 461,800 sqm of new supply will be added because of delayed building completions initially targeted for 2016.

In the Makati CBD, the report noted that there were no new completions in the fourth quarter of 2016 and that the net absorption of 6,900 sq.m. further dropped the vacancy rate to an extremely tight 0.6 percent compared to 1.2 percent in the third quarter.

The report revealed that rental rates in the country’s premier financial district grew by 3.6 percent year-on-year at the end of 2016 with an average rate of P1,016 per sqm per month.

The immediate future appears bleak with vacancies expected to remain low in the coming months and rents to grow healthily as market conditions become more favorable to landlords, it added.

And just like elsewhere in the metropolis, there were no new completion in the last quarter of 2016 at the Bonifacio Global City and new supply was less than expected as a number of building completions were pushed back to this year, KMC Savills said. Average vacancy rate last year was at one percent and rental growth was robust at 1.1 percent quarter on quarter, ending 2016 with an average rental rate of P900 per sqm per month, the report disclosed.

The report said that although as much as 461,400 sqm of new supply will be completed this year, demand will still be strong given that leasing activity in BGC is robust.

Surprisingly, Ortigas CBD recorded the lowest vacancy rate of 0.5 percent in the fourth quarter as no new office space was added. KMC Savills said that with the IBP Tower and the 30th Corporate Center coming in this year, around 67,400 sqm of office space will be added and demand may exceed supply, supporting rental growth in the coming months.

For Alabang, vacancy rate dropped to 1.7 percent at the end of 2016 while Grade A office rents grew 2.3 percent year-on-year in the last quarter with an average rent of P619.30 per sqm per month.

The report said the slowdown in rents in recent quarters could be a result of the market’s anticipation of the upcoming office supply in the area and the forecasted new supply of 151,800 sqm in the first half of 2017 will likely increase the vacancy rate to double digits.

In Quezon City, KMC Savills disclosed that rental growth improved by 1.9 percent in the fourth quarter and that existing vacancies is the key cause of rental decrease in the city which is not expected to improve in the coming quarters.

There was no new office supply but the vacancy rate was kept at nine percent, it added.

The report noted that the development pipeline in Quezon City office market will be aggressive in the coming years with a total of 367,600 sqm of new office space to be completed by 2020.

And finally, for the Bay Area, it was revealed that vacancies remained tight and rental growth slowed further to 3.8 percent year-on-year.

It said that office stock in the area is expected to grow by 63 percent this year, adding as much as 206,700 sqm, with sustained demand that will not put too much downward pressure on rents in the coming quarters despite rising vacancies.

So why were all these constructions activities pushed back? According to reports by other analysts, there seems to be a dearth in adequately skilled workers and this tight labor supply is becoming a threat to private construction in the country.

And so there seems to be a mismatch between what the hiring sector needs and what the labor force is able to deliver.

If this is really the root cause of all these construction delays, then I don’t see supply improving this year. And with the business process outsourcing (BPO) sector expecting continued progress in the coming years, demand will continue to outpace supply, which will be good for the lessors and bad for the lessees. Higher rents translate to increased cost of doing business which is not good.

Not so hidden agenda

The judiciary needs men and women who are highly competent and that is why I am making a pitch for my classmate at the Ateneo Law School, Metropolitan Trial Court Judge Teresita Asuncion Lacandula-Rodriguez who has applied to be a Regional Trial Court family court judge.

Judge Teachie of MeTC Branch 81 in Valenzuela City earned her Bachelor of Science in Legal Management degree from Ateneo de Manila University where she was a dean’s lister. She then took up law at UP in Diliman where she finished 5th in her graduating class. Even in high school at the School of the Holy Spirit, she was already an honor student, graduating third honorable mention. We were part of the pioneer batch of the Ateneo Master in International Law program which she finished in 2014. (I got my LLM from the University of Southern California, which has tapped comedy star Will Ferrell to be the 2017 commencement speaker. Ferrell has a degree in sports information from the USC Annenberg School for Communication and Journalism)

As a member of the judiciary, she was a finalist in the 2016 search for judicial excellence for outstanding first level court judges. She also worked as a court attorney in the Supreme Court, was chief judicial staff head of the Presidential Electoral Tribunal, and was a junior associate at the Castillo, Laman, Tan, Pantaleon & San Jose Law Office.

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