KMC Research

Metro Office Briefing 2Q 2020 | Office Briefing

Metro Manila Office Submarkets Future Stock (2023)

DEVELOPMENT PIPELINE (2020-2023) CURRENT STOCK

MAP 1

843,546 sq m 416,392 sq m C5 CORRIDOR

1,217,214 sq m 576,733 sq m FRINGE

460,540 sq m GREATER ORTIGAS 1,408,830 sq m MAKATI CBD

NAIA

2,234,737 sq m

1,191,083 sq m BAY AREA

439,947 sq m MCKINLEY

METRO MANILA CITIES QUEZON CITY SAN JUAN CITY CITY OF MANILA CITY 647,387 sq m MAKATI CITY CITY CITY CITY PARAÑAQUE CITY CITY LAS PIÑAS CITY 2 2Q 2020

Metro Manila

GRAPH 1 ■ Without any new completions, Metro Manila saw Stock & Vacancy an increase in office vacancies of around 58,600 sq m in 2Q/2020. The vacancy rate increased by a full percentage point to 6.5% during the Metro Manila CBDs Grade A Office Stock Metro Manila CBDs Grade A Office Vacancy Rate quarter. A decrease in the demand was seen 8,000 12% across most submarkets, with both BGC and Ortigas Center taking the biggest declines in

6,000 9% occupancy. We expect majority of the delayed buildings to come online by 4Q/2020 at the earliest. However, given the circumstances, the 4,000 6% incoming pipeline may add more pressure to the '000 sq '000sq m (GLA) office market.

2,000 3% ■ Average rental growth in Metro Manila managed a 2.7% YoY increase to PHP 1,020.8 per sq m /

0 0% month. However, as the pandemic continues to 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F put pressure on the office market, we observed

Source: KMC Savills Research overall rents decline by 0.3% from the previous quarter. Majority of the submarkets recorded a GRAPH 2 quarterly slide, with Ortigas Center taking the Supply & Take-Up biggest hit. We expect a downward repricing of base rents in the near term if current market

Metro Manila CBDs Grade A Office Supply conditions do not improve. Metro Manila CBDs Grade A Office Take-Up 1,200 ■ With 2Q/2020 representing the first full quarter 1,000 of Metro Manila under quarantine, there are early 800 signs that overall office demand may be slower in the coming months; although we foresee 600 the offshore and outsourcing (O&O) sector to

'000 sq '000sq m (GLA) 400 compensate the slack post-COVID. Amidst the pandemic, demand from the Philippine Offshore 200 Gaming Operator (POGO) sector may wane due to operational difficulties caused by the 0 stringent lockdown and increased pressure from -200 tax authorities. The sector has been dominantly 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F responsible for the tight vacancies in some Metro

Source: KMC Savills Research Manila submarkets since 2017.

TABLE 1 Key Figures - Grade A Office Makati Ortigas Quezon 2Q 2020 Unit BGC Alabang Bay Area CBD Center City PHP/sq m 1,150.1 1,036.2 695.7 694.7 756.4 871.1 Average net rental rate USD/sq ft 2.09 1.89 1.27 1.26 1.38 1.58

PHP/sq m 1,600.0 1,400.0 900.0 725.0 825.0 950.0 Upper net rental rate USD/sq ft 2.92 2.55 1.64 1.32 1.50 1.73

Vacancy rate % 1.8% 4.3% 16.2% 5.3% 13.2% 3.7%

Current Stock sq m 1,191,611 1,829,458 759,357 551,299 739,051 872,157 Development Pipeline sq m 217,219 405,279 457,857 96,089 104,495 318,926 2020-2023

* 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% 140

1,200 6% 120

100 1,000 5% 80 800 4% 60 600 3% '000 sq '000sq m (GLA) '000 sq '000sq m (GLA) 40

400 2% 20

200 1% 0

0 0% -20 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F

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 140 Metro Manila CBDs Grade A Office Rental Index 160 30% 120 140 20% 100 120 10% 80 100 0%

60

80 -10% (GLA) sq'000 m 3Q 2007 = 100 3Q 2007 40 60 -20%

40 -30% 20

0 2019 2020F 2021F 2022F 2023F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■ Makati CBD remains resilient despite the overall demand weakness while other submarkets suffered substantial losses. As a result, the submarket experienced just a slight increase in vacancies to 1.8% in 2Q/2020.

■ Average rents in Makati CBD were nearly flat from the previous quarter, registering a marginal increase of 0.1% QoQ to PHP 1,150.1 per sq m / month. Landlords remain in the wait-and-see stance before considering to reprice base rents.

■ Based on data from the first half of the year, there has already been cancellations of nearly 20,000 sq m of pre-committed space in Makati CBD. We do expect a lower rate of demand in the upcoming quarters as organizations reevaluate their office requirements. However, we should still expect the CBD to outperform all submarkets with vacancies remaining in the low single digits throughout the year.

4 2Q 2020

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 6% 400

2,000 5% 300 1,600 4%

1,200 3% 200 '000 sq '000sq m (GLA) '000 sq '000sq m (GLA) 800 2% 100 400 1%

0 0% 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F

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% 250 160 30%

140 20% 200 120 10%

100 0% 150

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

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

40 -30% 50 20 -40%

0 2019 2020F 2021F 2022F 2023F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■ Construction timelines in BGC continue to be delayed, with the earliest completions forecasted to come in 4Q/2020. Compounded by the effects of the lockdown, the district’s vacancy rate increased from 3.0% to 4.3% – an additional 23,500 sq m of available office space.

■ With many leasing decisions put on pause and the worse-than-expected surge in vacancies, average rents in BGC slipped in 2Q/2020. Average rents for the quarter closed at PHP 1,036.2 per sq m / month, contracting by 0.1% QoQ – the first quarterly decline since 2009.

■ BGC saw the highest number of new vacancies during the quarter – even with PEZA-accredited buildings. The flight of occupiers from the darling business district is an ominous signal to the rest of Metro Manila. On the other hand, the size of pre-committed space has been relatively unchanged which still signifies a strong rebound late this year or in 2021. The signals are mixed in the submarket, but we expect long-term optimism to wane if existing conditions persist.

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 40% 400

300 900 30%

200

600 20%

'000 sq '000sq m (GLA) 100 '000 sq '000sq m (GLA)

300 10% 0

0 0% -100 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F

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 400 Metro Manila CBDs Grade A Office Rental Index 160 30%

140 20% 300

120 10%

100 0% 200

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

60 -20% 100

40 -30%

0 2019 2020F 2021F 2022F 2023F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■ Vacancies continued to increase in Ortigas Center which rose to 16.2% of Grade A office stock. Although net absorption was negative at nearly 15,000 sq m, there was still some traction in the submarket – notably with Tower. Conversely, West Tower continues to struggle and leads the submarket in terms of vacancies.

■ Ortigas Center is wedged in an unfavorable condition as the pandemic abruptly cut occupier demand while it swims in new office stock. As a result, average rentals continue to be in a downward trajectory, posting a 0.9% YoY contraction to PHP 695.7 per sq m / month.

■ The overall stance of landlords was relatively unchanged with asking rents maintaining pre-COVID levels. Conditions in the submarket are anticipated to further deteriorate and may be hastened by the pandemic. We forecast the vacancy rate to hit 30.0% in 2021 due to the massive office pipeline of 329,200 sq m next year.

6 2Q 2020

Alabang

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

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

80

600 15% 60

40 400 10% 20 '000 sq '000sq m (GLA) '000 sq '000sq m (GLA)

200 5% 0

-20

0 0% -40 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F

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 80 Metro Manila CBDs Grade A Office Rental Index 160 30%

140 20% 60

120 10%

100 0% 40

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

60 -20% 20

40 -30%

0 2019 2020F 2021F 2022F 2023F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■ Vacancies continued to increase in the submarket despite a solid year of healthy demand in 2019. The vacancy rate rose to 5.3% from 4.5% in 1Q/2020 with most availabilities located in either Northgate Cyberzone or City.

■ Despite leasing activity continuing to dampen, average rents saw almost no change from the previous quarter. Rentals closed at PHP 694.7 per sq m / month and is expected to hover within that level until the end of the year. We do not foresee a continuous decrease in rents as vacancies are expected to remain manageable in Alabang.

■ Despite the submarket’s slide in performance, we expect it to benefit from a wave of occupiers targeting locations closer to residential districts. Although the vacancy rate may rise by the end of the year, we still expect recovery to begin at the latter half of 2020 with substantial gains by 2021.

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 900 18% 250

200

600 12% 150

100 '000 sq '000sq m (GLA) '000 sq '000sq m (GLA) 300 6% 50

0

0 0% -50 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F

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 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 = 100 3Q 2007 40 60 -20% 20 40 -30%

0 2019 2020F 2021F 2022F 2023F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■ Total vacancies increased by 11,600 sq m in 2Q/2020, or 13.2% of Grade A office stock (from 11.9% in 1Q/2020). Although lower than the 18.0% vacancy rate recorded in 2Q/2019, we foresee an erosion of the submarket’s advances from the past year. Occupier demand is forecasted to be muted with net absorption to hit just 9,000 sq m in 2020.

■ Average rents in Quezon City ended the quarter at PHP 756.4 per sq m / month, a decline of 0.2% QoQ. Despite the submarket’s advantageous proximity to the metro’s residential districts, we still expect rents to decline in the coming quarters. The elevated vacancy rate places additional weight on Quezon City’s current rentals which have been comparatively higher than Alabang and Ortigas Center.

■ With no new buildings set to come online in the near term, the likelihood of vacancies aggressively advancing is reduced. Unlike Ortigas Center, the submarket is anticipated to keep its vacancy rate stable and avoid hitting the high teens in 2021.

8 2Q 2020

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 1,600 16% 300

250

1,200 12% 200

150 800 8% 100 '000 sq '000sq m (GLA) '000 sq '000sq m (GLA)

50 400 4%

0

0 0% -50 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F

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 1,400 14%

1,200 12% 250

1,000 10% 200

800 8% 150

600 6% (GLA) sq'000 m

Php / sq m / month / sqPhp m 100

400 4% 50

200 2% 0 0 0% 2019 2020F 2021F 2022F 2023F 2011 2012 2013 2014 2015 2016 2017 2018 2019 2Q2020

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■ Vacancies in the Bay Area slightly grew to 3.7% of Grade A office stock. The submarket is relatively unaffected by the pandemic despite concerns of an exodus of POGO players during the quarantine.

■ Similar to several submarkets this quarter, the Bay Area’s average rental rate barely changed. The submarket recorded a minor dip of 0.1% QoQ to PHP 871.1 per sq m / month, and is the submarket’s first quarterly contraction since 2Q/2015.

■ The Bay Area still faces potential headwinds with the POGO sector still in the tax authority’s sites. Two operators have officially exited during the quarter – with Suncity as one notable example. We do not discount the possibility of a sizeable chunk of the sector to exit if conditions do not improve. Rents are thus at risk of declining given the market landscape.

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

Other Submarkets

■ Overall, conditions in the other submarkets GRAPH 27 were relatively unchanged. The Makati Stock by District Fringe had substantial gains during the

quarter and carried much of the other three McKinley Office Stock Makati Fringe Office Stock C5 Corridor Office Stock Greater Ortigas Office Stock submarkets’ weight. 2,100

■ The C5 Corridor had marginal 1,800 improvements after its drop in occupancies 1,500 last quarter. On the other hand, McKinley and Greater Ortigas experienced increases 1,200

in vacancies. '000sq m (GLA) 900

■ In the next few quarters, we may see 600 significant changes in these submarkets as the O&O sector assess their portfolios. 300 However, we still foresee vacancies to rise 0 in the short run. 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2022F

Source: KMC Savills Research

GRAPH 28 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 '000sq m (GLA)

80

40

0 2019 2020F 2021F 2022F 2023F

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 Eulogio Rodriguez Jr. submarket predominantly Global City, covering well as areas outside the Avenue from Quezon City covers the cities of Pasig McKinley West and McKinley Makati Central Business to Pasig City. Located and Mandaluyong­–which Hill. District, comprise the Makati north are , include , Fringe submarket. , Portico, Robinsons Business Park, and Cybergate Center and ; farther south are –and the Frontera Verde and ArcoVia. areas of Quezon City that surround the Ortigas Center.

10 2Q 2020

PROJECT FOCUS JEG TOWER @ ONE ACACIA

JEG Tower @ One Acacia is one of LOCATION Cebu City’s first premium grade green CEBU CITY buildings. It is a Grade A building and a definite future-proof structure in terms of GRADE design. This 22-floor tower is built using GRADE A environment-friendly materials and would operationalize as energy efficient as TURNOVER DATE possible. As a LEED Silver Pre-Certified 3Q 2020 development by the US Green Building Council, the building uses less water, GROSS LEASABLE AREA 14,360 SQ M energy, and emits less greenhouse gases.

The tower is set to be an icon among NO. OF FLOORS 22 office buildings in the city with said environment friendly features and HANDOVER CONDITION sophisticated design. It is set to become BARE SHELL WITH VRF the new standard in the real estate industry in Cebu City. Strategically 24 / 7 CAPABILITY located in one of the city’s major YES thoroughfares, it is soon to be one of the most desired office addresses in the heart BACKUP POWER of the Queen City of the South. 100%

GRAPH 29 12-month Supply Forecast by Building

120 BGC

100 Bay Area Ortigas Center 80 Makati CBD 60 Makati Fringe 40 '000 sq m (GLA)

20

0 SMDC Air SMDC The Reach 107 Aguirre 107 GLAS Tower Blakes Tower Blakes Cyber Omega Platinum Tower Uzume Building Uzume Exquadra Tower Exquadra Alveo Financial Tower Financial Alveo G.S.C Corporate Tower World Commerce Place Commerce World BGC Corporate Center Center 2 Corporate BGC Armstrong Corporate Center Park Triangle Corporate Plaza Corporate Triangle Park Anchor Land Corporate Center Corporate Land Anchor The Stiles Enterprise Plaza West Tower West Plaza Enterprise The Stiles 4Q 1Q 2Q 2020 2021

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

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