KMC Research

Metro Office Briefing 1Q 2019 | Office Briefing

Metro Manila Office Submarkets Future Stock (2022)

DEVELOPMENT PIPELINE (2019-2022) CURRENT STOCK

MAP 1

785,650 sq m 380,109 sq m C5 CORRIDOR

1,237,333 sq m 530,286 sq m FRINGE

460,540 sq m GREATER ORTIGAS 1,352,783 sq m MAKATI CBD

NAIA

2,137,714 sq m

1,045,336 sq m BAY AREA

400,860 sq m MCKINLEY

METRO MANILA CITIES QUEZON CITY SAN JUAN CITY CITY OF MANILA CITY 641,351 sq m MAKATI CITY CITY CITY CITY PARAÑAQUE CITY CITY LAS PIÑAS CITY 2 1Q 2019

Metro Manila

GRAPH 1 ■■With only 63,300 sq m of additional Grade Stock & Vacancy A office supply in the first quarter, the overall vacancy rate in Metro Manila sustained its steady pace at 5.1%. Meanwhile, net absorption sunk to Metro Manila CBDs Grade A Office Stock Metro Manila CBDs Grade A Office Vacancy Rate its two-year low at 42,600 sq m, dragged by the 7,000 14% poor performance in Quezon City 6,000 12% ■■The office sector should continue to exhibit 5,000 10% strength despite around 876,000 sq m of GLA 4,000 8% slated to come online this year – a historical high for Metro Manila. More than half of the new '000 sq m (GLA) sq'000 m 3,000 6% supply in 2019 is forecasted to come from BGC,

2,000 4% Ortigas Center and the Bay Area.

1,000 2% ■■The Philippine Online Gaming Operator (POGO) sector continues to grow after taking up another 0 0% 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 76,000 sq m of office space in the Bay Area alone in 2018 or almost half of the new supply in Source: KMC Savills Research the submarket last year. However, this is slower GRAPH 2 compared to what was observed in 2017 of Supply & Take-Up around 166,000 sq m. The sector is expected to sustain its momentum as it starts to expand its foothold into different submarkets which should Metro Manila CBDs Grade A Office Supply Metro Manila CBDs Grade A Office Take-Up 1,000 boost demand for office space in the short to medium term. Additionally, the O&O sector is still expected to occupy a huge portion of the Grade 800 A office stock in Metro Manila as current locators continue to operate and expand in the capital 600 and other emerging cities around the country. '000 sq m (GLA) sq'000 m 400 ■■With these factors in play, overall rental rates increased by 5.1% YoY in 1Q/2019 on the back

200 of newer buildings commanding higher rents in BGC and Ortigas Center. However, the large

0 volume of new supply in the coming quarters 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F should prove challenging. Landlords of older buildings may have difficulty leasing out their Source: KMC Savills Research vacancies amidst the entry of better-quality stock.

TABLE 1 BONIFACIO GLOBAL CITY Key Figures - Grade A Office 1Q 2019 Makati Ortigas BGC Alabang Quezon City Bay Area CBD Center Average net rental rate 1,107.9 981.6 697.0 674.9 744.7 833.7 (Php/sq m/month)

Upper net rental rate 1,600.0 1,250.0 875.0 750.0 800.0 950.0 (Php/sq m/month)

Vacancy rate (%) 3.0% 5.2% 1.1% 1.3% 19.4% 0.7%

Current stock (sq m) 1,191,611 1,749,047 601,857 492,942 693,601 702,648

Development pipeline 197,872 388,667 635,476 148,410 92,048 342,687 2019-2022 (sq m)

* Makati CBD includes Premium Offices kmcmaggroup.com/research | 3 Metro Manila | Office Briefing

Makati CBD

GRAPH 3 GRAPH 4 Stock & Vacancy Supply & Take-Up

Makati CBD Premium and Grade A Office Stock Makati CBD Premium and Grade A Office Supply Makati CBD Premium and Grade A Office Vacancy Rate Makati CBD Premium and Grade A Office Take-Up 1,400 7% 120

1,200 6% 100

1,000 5% 80

800 4% 60

600 3% 40 '000 sq m (GLA) sq'000 m '000 sq m (GLA) sq'000 m

400 2% 20

200 1% 0

0 0% -20 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F

Source: KMC Savills Research Source: KMC Savills Research

GRAPH 5 GRAPH 6 Rental Performance Development Pipeline

Makati CBD Rental Growth, YoY Makati CBD Premium and Grade A Office Rental Index 120 Metro Manila CBDs Grade A Office Rental Index 160 30%

100 140 20%

120 10% 80

100 0% 60

80 -10% (GLA) sq'000 m 3Q 2007 = 2007 3Q 100 40

60 -20% 20

40 -30% 0 2018 2019F 2020F 2021F 2022F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■The Makati CBD maintained its low vacancy rate at 3.0% in 1Q/2019 even with the addition of 36,700 sq m from Ayala North Exchange Tower Two.

■■The premier business district continues to dominate in terms of average rental rate as it closed the quarter with PHP1,107.9 per sq m / month, growing at a stable pace of 4.5% YoY.

■■Although there are no expected completions in Makati CBD for the remainder of the year, tight conditions in the submarket could persist while subsequently driving rents higher in the coming quarters.

4 1Q 2019

Bonifacio Global City

GRAPH 7 GRAPH 8 Stock & Vacancy Supply & Take-Up

Bonifacio Global City Grade A Office Stock Bonifacio Global City Grade A Office Supply Bonifacio Global City Grade A Office Vacancy Rate Bonifacio Global City Grade A Office Take-Up 2,400 8% 400

2,100 7%

1,800 6% 300

1,500 5%

1,200 4% 200 '000 sq m (GLA) sq'000 m 900 3% (GLA) sq'000 m

600 2% 100

300 1%

0 0% 0 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F

Source: KMC Savills Research Source: KMC Savills Research

GRAPH 9 GRAPH 10 Rental Performance Development Pipeline

Bonifacio Global City Rental Growth, YoY Bonifacio Global City Grade A Office Rental Index 300 Metro Manila CBDs Grade A Office Rental Index 180 40%

160 30%

140 20% 200 120 10%

100 0%

80 -10% '000 sq m (GLA) sq'000 m

3Q 2007 = 2007 3Q 100 100 60 -20%

40 -30%

20 -40% 0 2018 2019F 2020F 2021F 2022F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■The completion of Avida Capital House contributed 26,600 sq m to total stock, which prompted vacancies to inch up marginally to 5.2% in 1Q/2019.

■■Rents in BGC expanded by 5.5% YoY to PHP989.3 per sq m / month – due to the demand shifting to newer buildings with above-average rental rates.

■■BGC is expected to welcome 248,300 sq m of new Grade A office space in the coming quarters which may put pressure on vacancies. Nevertheless, rental rates could rise regardless of the incoming supply due to the robust occupier demand.

kmcmaggroup.com/research | 5 Metro Manila | Office Briefing

Ortigas Center

GRAPH 11 GRAPH 12 Stock & Vacancy Supply & Take-Up

Ortigas Center Grade A Office Stock Ortigas Center Grade A Office Supply Ortigas Center Grade A Office Vacancy Rate Ortigas Center Grade A Office Take-Up 1,200 18% 250

1,000 15% 200

800 12% 150

600 9% 100 '000 sq m (GLA) sq'000 m '000 sq m (GLA) sq'000 m 400 6% 50

200 3% 0

0 0% -50 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F

Source: KMC Savills Research Source: KMC Savills Research

GRAPH 13 GRAPH 14 Rental Performance Development Pipeline

Ortigas Center Rental Growth, YoY Ortigas Center Grade A Office Rental Index 250 Metro Manila CBDs Grade A Office Rental Index 160 30%

140 20% 200

120 10% 150

100 0%

100 80 -10% (GLA) sq'000 m 3Q 2007 = 2007 3Q 100

60 -20% 50

40 -30% 0 2018 2019F 2020F 2021F 2022F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■Sustained occupier demand from the O&O sector was observed in Ortigas Center as vacancies contracted further to 1.1% from 2.0% in 4Q/2018.

■■Consequently, the tight market conditions during the quarter pushed rents to grow by 4.5% YoY at PHP699.3 per sq m / month.

■■Ortigas Center is expected to receive an additional supply of around 636,000 sq m of office space until 2022. Accordingly, this could cause a surge in vacancies and possibly stagnate rental growth over the following quarters.

6 1Q 2019

Alabang

GRAPH 15 GRAPH 16 Stock & Vacancy Supply & Take-Up

Alabang Grade A Office Stock Alabang Grade A Office Supply Alabang Grade A Office Vacancy Rate Alabang Grade A Office Take-Up 800 20% 100

80 600 15%

60

400 10%

40 '000 sq m (GLA) sq'000 m '000 sq m (GLA) sq'000 m

200 5% 20

0 0% 0 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F

Source: KMC Savills Research Source: KMC Savills Research

GRAPH 17 GRAPH 18 Rental Performance Development Pipeline

Alabang Rental Growth, YoY Alabang Grade A Office Rental Index 100 Metro Manila CBDs Grade A Office Rental Index 160 30%

140 20% 80

120 10% 60

100 0%

40 80 -10% (GLA) sq'000 m 3Q 2007 = 2007 3Q 100

60 -20% 20

40 -30% 0 2018 2019F 2020F 2021F 2022F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■Despite having no new completions in the submarket, the vacancy rate tightened further to 1.3% in 1Q/2019, compared to the 1.4% recorded in 4Q/2018.

■■Rental rates increased by 4.0% YoY to PHP678.8 per sq m / month as the submarket continues to attract occupiers from the POGO sector.

■■Robust occupier demand from the POGO and O&O sectors have kept vacancies in Alabang low and may persist in the coming quarters, which we believe could buoy rental rates.

kmcmaggroup.com/research | 7 Metro Manila | Office Briefing

Quezon City

GRAPH 19 GRAPH 20 Stock & Vacancy Supply & Take-Up

Quezon City Grade A Office Stock Quezon City Grade A Office Supply Quezon City Grade A Office Vacancy Rate Quezon City Grade A Office Take-Up 1,000 20% 250

200 800 16%

150 600 12%

100

400 8% '000 sq m (GLA) sq'000 m '000 sq m (GLA) sq'000 m 50

200 4% 0

0 0% -50 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F

Source: KMC Savills Research Source: KMC Savills Research

GRAPH 21 GRAPH 22 Rental Performance Development Pipeline

Quezon City Rental Growth, YoY Quezon City Grade A Office Rental Index 250 Metro Manila CBDs Grade A Office Rental Index 160 30%

140 20% 200

120 10% 150

100 0%

100 80 -10% (GLA) sq'000 m 3Q 2007 = 2007 3Q 100

60 -20% 50

40 -30% 0 2018 2019F 2020F 2021F 2022F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■Although there was no additional office supply in 1Q/2019 and with its occupier demand still lackluster, Quezon City’s vacancy rate reached a record high of 19.4% with a negative net absorption of 20,700 sq m.

■■As a result, it pulled average rents lower by 0.4% QoQ to PHP744.7 per sq m / month – a stark contrast from its average in 2Q/2018 of PHP753.2 per sq m / month.

■■In the medium term, the vacancy rate could continue to play around in the high teens. We expect these conditions to persist further until 2020 and create more downward pressure on rents in the coming quarters.

8 1Q 2019

Bay Area

GRAPH 23 GRAPH 24 Stock & Vacancy Supply & Take-Up

Bay Area Grade A Office Stock Bay Area Grade A Office Supply Bay Area Grade A Office Vacancy Rate Bay Area Grade A Office Take-Up 1,400 7% 250

1,200 6% 200

1,000 5% 150

800 4% 100 600 3% '000 sq m (GLA) sq'000 m '000 sq m (GLA) sq'000 m 50 400 2%

0 200 1%

0 0% -50 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F

Source: KMC Savills Research Source: KMC Savills Research

GRAPH 25 GRAPH 26 Rental Performance Development Pipeline

Bay Area Grade A Office Rental Growth YoY Bay Area Grade A Office Rental Rates 300 1,000 20%

800 16% 200

600 12% '000 sq m (GLA) sq'000 m 400 8% 100 Php / sq m / month m sq / Php

200 4%

0 0 0% 2018 2019F 2020F 2021F 2022F 2011 2012 2013 2014 2015 2016 2017 1Q2019 Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■With no completions for the first quarter, vacancies remain relatively unchanged at 0.7% of total stock albeit slightly higher from last quarter.

■■Rental rates for the Bay Area continue to outperform the other submarkets as it recorded another double-digit growth of 11.6% YoY and registered an average rate of PHP833.7 per sq m / month. The very tight conditions in the submarket have continuously buoyed rentals since 2018.

■■While we see a significant influx of supply in the quarters ahead with the additional 228,900 sq m of GLA, we could expect net absorption to soften in the submarket as the POGO sector starts to enter new locations in Metro Manila.

kmcmaggroup.com/research | 9 Metro Manila | Office Briefing

Other Submarkets

■■The growing presence of the POGO sector GRAPH 27 drove vacancies in the Makati Fringe to its Stock by District lowest at 0.3% of total stock in 1Q/2019

from 3.8% in the previous quarter. McKinley Office Stock Makati Fringe Office Stock C5 Corridor Office Stock Greater Ortigas Office Stock 1,800 ■■With no new completions in Greater

Ortigas, conditions in the submarket 1,500 continued to show improvement with the vacancy rate hitting 8.0% against the 1,200 10.7% in 4Q/2018. Meanwhile, contract expirations in C5 Corridor and McKinley 900 drove vacancies upward to 4.1% and (GLA) sq'000 m 8.1%, respectively. 600

300 ■■As the POGO sector continues to entrench

itself in different locations in the capital and 0 with the O&O sector’s further expansion, 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F

we expect strong net absorption that will Source: KMC Savills Research mitigate the surge in vacancies from the additional 202,800 sq m of new supply in GRAPH 28 2019. Development Pipeline by District

McKinley Office Supply Makati Fringe Office Supply C5 Corridor Office Supply Greater Ortigas Office Supply 240

200

160

120 '000 sq m (GLA) sq'000 m

80

40

0 2018 2019F 2020F 2021F 2022F

Source: KMC Savills Research

Definition of other submarkets These submarkets are not included in the aggregate Metro Manila figures

MCKINLEY MAKATI FRINGE C5 CORRIDOR GREATER ORTIGAS

The McKinley submarket is , Century C5 Corridor covers a stretch The Greater Ortigas located south of Bonifacio City and , as of the C5 Road from Quezon submarket predominantly Global City, covering well as areas outside the City to Pasig City. Located covers the cities of Pasig McKinley West and McKinley Makati Central Business north are , and Mandaluyong­–which Hill. District, comprise the Makati Nuvo City, Circulo Verde, include , Fringe submarket. Business Park, Portico, Robinsons and the upcoming Ayala- Cybergate Center and Eton joint-venture project; –and the farther south are Frontera areas of Quezon City that Verde and ArcoVia. surround the Ortigas Center.

10 1Q 2019

PROJECT FOCUS DOUBLEDRAGON CENTER WEST AT DD MERIDIAN PARK

The DoubleDragon Center West is located LOCATION at DD Meridian Park, the prime office BAY AREA and commercial complex at the forefront GRADE of Bay Area. The tower is strategically GRADE A located at EDSA extension corner TURNOVER DATE Macapagal Avenue making it a highly 2Q 2019 accessible point in the Metro. Developed GROSS LEASABLE AREA by DoubleDragon Properties Corp, this 17,600 SQ M tower has space allocations for office and NO. OF FLOORS retail, offering a total gross floor area of 11 19,252.17 sq m. The structure has a total FLOOR PLATE (GLA) of 11 floors for commercial and office 2,200 SQ M use with a total of 108 parking slots to HANDOVER CONDITION conveniently accommodate its tenants. BARE SHELL WITH AC 24 / 7 CAPABILITY The Double Dragon Center West is also YES Fiber Optic ready and features integrated BACKUP POWER building management with CCTV and N+1 security intercom with 24/7 capability and 100% Back up power. In pursuant of sustainability, it features a rainwater harvesting system and has provision for fresh air.

GRAPH 29 12-month Supply Forecast by Building

120

100

80

60

40 '000 sq m (GLA)

20

0 Altaire Met Live Ecoprime Milestone Estancia 2 One Paseo Two Paseo CTP Asean Giga Tower Unioil Tower GLAS Tower PITX Tower 1 Tower PITX 2 Tower PITX 3 Tower PITX 4 Tower PITX Blakes Tower Jollibee Tower Jollibee Udenna Tower Brilliance Center FourE-Com Center Filinvest Axis Tower 2 Eastwood Global Plaza G.S.C Corporate Tower Corporate G.S.C World Commerce Place Century Diamond Tower The Podium West Tower BGC Corporate2 Center SM North EDSA Tower1 SM North EDSA Tower2 DoubleDragon Center East DoubleDragon Center West AyalaMall Corporate Center Park Triangle Corporate Center The Stiles Enterprise Plaza West Tower Park Triangle Corporate Plaza North Tower 2Q 3Q 4Q 1Q 2019 2020

Makati CBD BGC Ortigas Center Alabang Quezon City Bay Area Greater Ortigas C5 Makati Fringe McKinley

kmcmaggroup.com/research | 11 Metro Manila | Office Briefing KMC Savills, Inc. Please contact us for further information

Michael McCullough Fredrick Rara Managing Director Manager [email protected] Research and Consultancy [email protected]

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Rosario Carbonell John Corpus Executive Director Executive Director Tenant Representation Worldwide Occupier Services [email protected] [email protected]

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