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Metro Manila Office Briefing 4Q 2018 | 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

1,216,545 sq m 458,902 sq m FRINGE

460,540 sq m GREATER ORTIGAS 1,389,483 sq m MAKATI CBD

NAIA

2,121,940 sq m

988,755 sq m BAY AREA

400,860 sq m MCKINLEY

METRO MANILA CITIES QUEZON CITY SAN JUAN CITY CITY OF MANILA CITY 638,105 sq m MAKATI CITY CITY CITY CITY PARAÑAQUE CITY CITY LAS PIÑAS CITY 2 4Q 2018

Metro Manila

GRAPH 1 ■■Metro Manila saw 746,900 sq m of new Grade Stock & Vacancy A office completions in 2018 – roughly the same amount recorded in 2017. Net absorption was

Metro Manila CBDs Grade A Office Stock significantly higher last year at 701,100 sq m Metro Manila CBDs Grade A Office Vacancy Rate 8,000 16% compared to 615,200 sq m recorded in 2017. As such, overall vacancies were kept at just 4.8% of 7,000 14% stock and is slightly higher than the 4.5% vacancy 6,000 12% rate the previous year.

5,000 10% ■■Rents in the capital have accelerated further, 4,000 8% hitting 5.0% YoY in 4Q/2018. The tight conditions '000 sq m (GLA) sq'000 m 3,000 6% coupled with contract expirations have propped higher bids in Makati CBD while subsequently 2,000 4% pushing up rents in the premier district. In addition, 1,000 2% rents in BGC are still on the uptrend as the strong

0 0% outsourcing and offshoring (O&O) demand raised 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F rentals further during the quarter.

Source: KMC Savills Research ■■Quezon City received more than half of new GRAPH 2 supply in 4Q/2018 which raised its vacancy rate Supply & Take-Up to a ten-year high of 16.4% as occupier demand remained sluggish. This has dragged Metro

Metro Manila CBDs Grade A Office Supply Manila’s performance during the quarter and Metro Manila CBDs Grade A Office Take-Up 1,000 may pull the office market further in the coming quarters. It has been a key outlier since 2016,

800 failing to follow other submarkets such as the Bay Area and Alabang which have reversed its course since then. 600

■In the coming quarters, our eyes are on Ortigas '000 sq m (GLA) sq'000 m ■ 400 Center which is expected to see 206,000 sq m of new Grade A office stock. We anticipate that 200 occupier demand in the CBD will struggle with the influx of office supply as it will consequently 0 raise total vacancies. However, we also forecast a 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F significant acceleration in rents in Ortigas Center as new supply improves the quality of its overall Source: KMC Savills Research stock.

TABLE 1 BONIFACIO GLOBAL CITY Key Figures - Grade A Office 4Q 2018 Makati Ortigas BGC Alabang Quezon City Bay Area CBD Center Average net rental rate 1,104.0 972.8 691.0 671.6 747.4 826.5 (Php/sq m/month)

Upper net rental rate 1,550.0 1,250.0 850.0 725.0 825.0 950.0 (Php/sq m/month)

Vacancy rate (%) 3.0% 5.0% 2.0% 1.4% 16.4% 0.6%

Current stock (sq m) 1,154,911 1,722,450 601,857 489,696 693,601 704,527

Development pipeline 234,572 399,490 614,687 148,410 92,048 284,228 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 14% 120

1,200 12% 100

1,000 10% 80

800 8% 60

600 6% 40 '000 sq m (GLA) sq'000 m '000 sq m (GLA) sq'000 m

400 4% 20

200 2% 0

0 0% -20 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2010 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 vacancy rate in Makati CBD remained tight at 3.0% notwithstanding the completion of NEX Tower and a slower net absorption of 19,500 sq m compared to last quarter.

■■The premier business district has had very tight conditions since 2016, and we are seeing the effects with rents accelerating in 2018. Makati CBD registered a rental growth of 5.4% YoY in 4Q/2018, bringing average rents to PHP 1,104.0 per sq m / month.

■■For 2019, we expect further contraction in vacancies given the limited supply in the district’s pipeline. As a result, rents are still expected to further escalate since contract expirations are forecasted to drive higher bids given the limited availability of office space.

4 4Q 2018

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 24% 400

2,000 20% 300 1,600 16%

1,200 12% 200 '000 sq m (GLA) sq'000 m '000 sq m (GLA) sq'000 m 800 8% 100 400 4%

0 0% 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2010 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% 250

140 20% 200 120 10%

100 0% 150

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

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

40 -30% 50

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

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■The additional supply of 26,000 sq m from Asian Century Centre and the slower net take-up drove the vacancy rate higher to 5.0% in 4Q/2018 from 4.5% the previous quarter.

■■Despite the slack in vacancies, rents in BGC continued to grow at a healthy pace of 5.0% YoY resulting to PHP 972.8 per sq m / month on the back of stronger demand from the O&O sector.

■■In the coming quarters, we anticipate an upswing in vacancies due to the incoming 271,000 sq m of new supply expected to be completed in 2019. We still see rents growing in the coming quarters despite the incoming supply; although the increasing vacancies in the submarket should increase the risk of rents stagnating.

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 24% 300

1,000 20% 250

200 800 16%

150 600 12% 100 '000 sq m (GLA) sq'000 m '000 sq m (GLA) sq'000 m 400 8% 50

200 4% 0

0 0% -50 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2010 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 300 Metro Manila CBDs Grade A Office Rental Index 160 30%

250 140 20%

120 10% 200

100 0% 150

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

60 -20% 50

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

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■Market conditions in Ortigas Center improved as we saw a substantial decrease in vacancies amid no new completions in 4Q/2018. The submarket ended the year with a vacancy rate of 2.0% after net absorption rebounded to 51,700 sq m in 2018 compared to just 2,800 sq m in 2017.

■■Despite the tightening conditions, rental growth was still modest at 3.3% YoY and raising average rents to PHP 691.0 per sq m / month.

■■We may see double-digit vacancy rates in the coming quarters due to the large inflow of new supply from The Podium West Tower in 1Q/2019. Although elevated vacancies typically pull rental growth down, improvement in the quality of the overall stock in Ortigas Center should correct the rental disparity between the established CBDs.

6 4Q 2018

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 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2010 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

■■Even with an additional 26,600 sq m of GLA in 4Q/2018, Alabang sustained its momentum with a solid net take-up of 37,400 sq m. Vacancies are becoming tighter in the fledgling district as vacancies further dropped to 1.4% of stock.

■■Rental rates saw a rise of 5.3% YoY leading to PHP 671.6 per sq m / month. These rates are within expectations due to the presence of the POGO sector in the submarket.

■■Alabang could still experience low vacancies in the coming quarters as the POGO sector further entrenches itself in the south of the capital. We still see rentals to breach PHP 700.0 per sq m / month in 2019 with the additional demand from the O&O sector.

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 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2010 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

■■With the completion of Cyberpark Tower Two and Centris Cyberpod Five, Quezon City continued its slump as the vacancy rate doubled to 16.4% in 4Q/2018 compared to 8.7% last quarter.

■■Rents were still in the downtrend as it declined by another 0.2% QoQ, ending with an average rate of PHP 747.4 per sq m / month

■■We forecast sluggish net absorption in the coming quarters given that the anemic occupier demand in Quezon City could be sustained in 2019. Further weakness in rental growth is also expected due to the record vacancy rate in the submarket.

8 4Q 2018

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 1,200 6% 250

1,000 5% 200

800 4% 150

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

200 1% 0

0 0% -50 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2010 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 250 1,000 20%

200 800 16%

150 600 12%

100 400 8% (GLA) sq'000 m Php / sq m / month m sq / Php 50 200 4%

0 0 0% 2018 2019F 2020F 2021F 2022F 2011 2012 2013 2014 2015 2016 2017 4Q2018 Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■The Bay Area’s vacancy rate marginally increased to 0.6% amid the additional 35,200 sq m from Filinvest Land and Estopace Properties. The budding district had an excellent year with net absorption of 180,300 sq m exceeding new supply of 163,500 sq m.

■■Rental rates continued to show strong growth as it registered a 10.9% YoY surge during the quarter.

■■Conditions in the Bay Area have been consistently tight and may persist until 2019 due to the steady demand coming from the POGO sector. However, we may see conditions ease this year as the sector enters new locations such as Alabang and the Makati Fringe.

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

Other Submarkets

■■The C5 Corridor showed stellar GRAPH 27 improvement as we saw a sharp drop Stock by District in its vacancy rate to 2.7% in 4Q/2018

compared to the submarket’s 12.4% in McKinley Office Stock Makati Fringe Office Stock C5 Corridor Office Stock Greater Ortigas Office Stock 3Q/2018. On the back of stronger net 1,800 absorption of 26,400 sq m, the submarket

was able to reduce vacancies amid no new 1,500 completions. 1,200 ■■Greater Ortigas was able to reduce its vacancy rate to 10.7% as net absorption 900 increased to 9,500 sq m during the quarter. (GLA) sq'000 m McKinley also recorded a drop in vacancies 600 at 5.6% of stock against 6.6% in 3Q/2018. 300 Conditions in the Makati Fringe further

tightened as well with the vacancy rate 0 declining to 3.8% from 5.0% the previous 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019F 2020F 2021F

quarter. Source: KMC Savills Research

■■In 2019, these submarkets are expected GRAPH 28 to have 189,700 sq m of new office space Development Pipeline by District which should raise vacancies. However, the expansion of the O&O sector should McKinley Office Supply Makati Fringe Office Supply C5 Corridor Office Supply Greater Ortigas Office Supply alleviate any concerns of the vacancy rate 200 hitting double digits in these submarkets.

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, , 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 4Q 2018

PROJECT FOCUS PARANAQUE INTEGRATED TERMINAL EXCHANGE (PITX)

PITX is an all-in-one terminal, retail, and LOCATION office structure strategically located PARANAQUE CITY between Diosdado Macapagal Boulevard GRADE and CAVITEX. Developed by MWMM GRADE A Terminal Inc, this is one of the newest TURNOVER DATE three intermodal terminals launched by Q1 2019 the Department of Transportation. PITX GROSS LEASABLE AREA will serve as the ideal transfer point for 76,900 SQ M (19,200 SQ M/ TOWER) a wide selection of provincial and in-city NO. OF FLOORS transport modes, traversing the busy 6 thoroughfares such as EDSA, Baclaran, FLOOR PLATE (GLA) and Taft. 3,200 SQ M HANDOVER CONDITION The structure also carries 6 floors of BARE SHELL premier office spaces with a typical 24 / 7 CAPABILITY floor plate of 3,200 square meters, YES accommodating multiple tenants BACKUP POWER or businesses to ensure maximum 100% occupancy.

GRAPH 29 12-month Supply Forecast by Building

120

100

80

60

40 '000 sq m (GLA) 20

0 Met Live Ecoprime Milestone eWestPod Estancia 2 One Paseo CTP Asean Giga Tower Unioil Tower PITX Tower 3 Tower PITX 1 Tower PITX 2 Tower PITX 4 Tower PITX Jollibee Tower Jollibee Udenna Tower FourE-Com Center Avida Capital House Forbes Media Tower Filinvest Axis Tower 2 Eastwood Global Plaza World Commerce Plaza The Podium West Tower BGC Corporate2 Center SM North EDSA Tower1 SM North EDSA Tower2 DoubleDragon Center East DoubleDragon Center West AyalaMall Corporate Center Ayala North Exchange 1 BPO Park Triangle Corporate Plaza North Tower 1Q 2Q 3Q 4Q 2019 Makati CBD BGC Ortigas Center Alabang Quezon City Bay Area Greater Ortigas C5 Makati Fringe McKinley

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

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

Melo Porciuncula Gerold Fernando Executive Director Executive Director Investment Services and Landlord Tenant Representation Representation [email protected] [email protected]

Rosario Carbonell Lana Osmeña Executive Director General Manager - Cebu Tenant Representation [email protected] [email protected]

Francis Fuellas Director Property & Facilities Management [email protected]

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