KMC MAGKMC Group Savills Research Research

Metro Manila Office Briefing 2Q 2018 Metro Manila | Office Briefing

Metro Manila Office Submarkets Future Stock (2021)

DEVELOPMENT PIPELINE (2018-2021) CURRENT STOCK

MAP 1

784,898 sq m 370,628 sq m QUEZON CITY C5 CORRIDOR

1,006,102 sq m 373,521 sq m MAKATI FRINGE

459,652 sq m GREATER ORTIGAS

1,320,469 sq m MAKATI CBD NAIA

2,024,601 sq m BONIFACIO GLOBAL CITY

953,851 sq m BAY AREA

400,860 sq m MCKINLEY

METRO MANILA CITIES QUEZON CITY SAN JUAN CITY CITY OF MANILA MANDALUYONG CITY 599,206 sq m MAKATI CITY CITY ALABANG PASAY CITY TAGUIG CITY PARAÑAQUE CITY MUNTINLUPA CITY LAS PIÑAS CITY 2 2Q 2018

Metro Manila

GRAPH 1 ■■The overall vacancy rate in Metro Manila dropped Stock & Vacancy to 3.0% in 2Q/2018 from the previous quarter’s 3.8%. Net absorption of around 198,200 sq

Metro Manila CBDs Grade A Office Stock m outpaced the 164,300 sq m of new office Metro Manila CBDs Grade A Office Vacancy Rate 7,000 14% completions during the same quarter. Quezon City was able to significantly reduce its vacancies 6,000 12% to 8.0% of its current stock due to the recovery

5,000 10% of certain outliers in the submarket.

4,000 8% ■■As such, the tight market conditions have caused rental growth to accelerate by 4.4% YoY '000 sq m (GLA) sq'000 m 3,000 6% during the quarter. Much of the acceleration was 2,000 4% observed in the Bay Area where it experienced rental growth of 11.5% YoY during 2Q/2018. 1,000 2% Alabang also had above average growth of 5.0%

0 0% YoY as Philippine Offshore Gaming Operator 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F (POGO) tenants settle into the fledgling CBD.

Source: KMC Savills Research ■■In the first half of 2018, as much as 294,300 sq GRAPH 2 m of GLA was introduced in the market. So far, Supply & Take-Up robust occupier demand has been sustained and has kept vacancy rates low in most submarkets.

Metro Manila CBDs Grade A Office Supply However, the second half of the year is expected Metro Manila CBDs Grade A Office Take-Up 1,000 to bring 581,900 sq m of new Grade A office space into the Metro Manila market. Based

800 on the historical trend of office completions, the incoming new supply is still significantly challenging. 600

■The POGO sector has taken a foothold in certain '000 sq m (GLA) sq'000 m ■ 400 submarkets, such as Alabang and the Makati Fringe. However, the offshore and outsourcing 200 (O&O) market has been resilient in the Bay Area despite the dominance of the POGO sector. With 0 the impressive performance of both sectors in 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2Q/2018, we have revised our 2018 year-end vacancy rate forecast downwards to 6.7%. Source: KMC Savills Research

TABLE 1 BONIFACIO GLOBAL CITY Key Figures - Grade A Office 2Q 2018 Makati Ortigas BGC Alabang Quezon City Bay Area CBD Center Average net rental rate 1,084.4 952.1 679.6 662.3 753.2 795.0 (Php/sq m/month)

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

Vacancy rate (%) 2.3% 3.3% 2.5% 0.8% 8.0% 0.9%

Current stock (sq m) 1,101,074 1,615,250 558,513 440,195 543,427 653,310

Development pipeline 219,395 409,351 447,589 159,010 241,471 300,541 2018-2021 (sq m)

* Makati CBD includes Premium Offices

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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% 100

1,200 12% 80

1,000 10% 60

800 8% 40 600 6% '000 sq m (GLA) sq'000 m '000 sq m (GLA) sq'000 m 20 400 4%

0 200 2%

0 0% -20 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F

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 '000 sq m (GLA) sq'000 m

3Q 2007 = 2007 3Q 100 80 -10% 40

60 -20% 20

40 -30% 0 2017 2018F 2019F 2020F 2021F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■In the last few months, market absorption has been relatively slow for certain key buildings in the premium business district. Coupled with the increasing number of contract expirations, the vacancy rate increased to 2.3% in 2Q/2018 from 2.1% in the previous quarter.

■■Despite the increase in vacancies, rents in Makati CBD rose by an impressive 4.5% YoY, closing the quarter at Php 1,084.4 per sq m / month.

■■In the second half of 2018, the premier CBD is expected to welcome around 53,000 sq m of new office space from the first tower of the Ayala North Exchange and NEX Tower. Vacancies are expected to rise during the next quarters and may hamper rental growth in 2019.

4 2Q 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 12% 400

2,000 10% 300 1,600 8%

1,200 6% 200 '000 sq m (GLA) sq'000 m '000 sq m (GLA) sq'000 m 800 4% 100 400 2%

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

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

140 20% 300

120 10%

100 0% 200 '000 sq m (GLA) sq'000 m

3Q 2007 = 2007 3Q 100 80 -10%

100 60 -20%

40 -30% 0 2017 2018F 2019F 2020F 2021F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■Despite the additional 60,000 sq m increase to BGC’s Grade A office stock, the vacancy rate declined to 3.3% in 2Q/2018.

■■With the tightening market conditions, the average rental rate grew by a quicker pace at 4.4% YoY to Php 952.1 per sq m / month.

■■We are expecting vacancies to rise in the next 12 months due to the 272,000 sq m of new supply. We still estimate market absorption to continue during this period as demand for BGC offices is sustained. Rental growth may further accelerate as the vacancy rate is estimated to remain low in single digits.

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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 1,000 15% 300

250 800 12%

200

600 9% 150

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

400 6% (GLA) sq'000 m

50 200 3% 0

0 0% -50 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F

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%

140 20%

120 10% 200

100 0% '000 sq m (GLA) sq'000 m 3Q 2007 = 2007 3Q 100 80 -10% 100

60 -20%

40 -30% 0 2017 2018F 2019F 2020F 2021F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■Vacancies continued to decrease to 2.5% of office stock in 2Q/2018 from 3.4% last quarter as there were no new completions during the quarter. On the other hand, Robinsons Cyberscape Gamma is anticipated to be completed by the next quarter and will add around 43,300 sq m of new office supply.

■■Rental growth recovered to 3.2% YoY in 2Q/2018 from 1.9% YoY the previous quarter. However, the recovery was still below expectations given the very tight conditions in the submarket.

■■The vacancy rate is forecasted to remain low in 2018 as pre-leasing for Cyberscape Gamma was reportedly to be brisk earlier this year. We may see some improvement in rental growth as well with the growing number of new Grade A offices. In the coming 12 months, West Tower, Jollibee Tower, and GLAS Tower are expected to improve the overall quality of office stock in the submarket and push up rentals that have been trailing behind the premier submarkets of Makati CBD and BGC.

6 2Q 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 600 18% 100

500 15% 80

400 12% 60

300 9% '000 sq m (GLA) sq'000 m '000 sq m (GLA) sq'000 m 40 200 6%

20 100 3%

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

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% 3Q 2007 = 2007 3Q 100

'000 sq m (GLA) sq'000 m 40 80 -10%

60 -20% 20

40 -30% 0 2017 2018F 2019F 2020F 2021F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■The additional 38,900 sq m from Filinvest Axis Tower 1 barely made a dent in Alabang as the vacancy rate remained low at a very tight 0.8% of total stock. Prior to its completion, pre-leasing of the office building was robust as the demand from the POGO sector expanded into the submarket.

■■With the tight market conditions in Alabang, the average rent grew by 5.0% YoY during the quarter, pegged at Php 662.3 per sq m / month

■■We have revised our vacancy rate forecast downwards for Alabang given the entry of POGO players in the submarket. We further expect an acceleration of rental growth in the coming quarters, similar to our experience in the Bay Area.

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 800 20% 250

200 600 15% 150

400 10% 100 '000 sq m (GLA) sq'000 m '000 sq m (GLA) sq'000 m 50 200 5% 0

0 0% -50 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F

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%

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

60 -20% 50

40 -30% 0 2017 2018F 2019F 2020F 2021F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■Market conditions in Quezon City have improved as the vacancy rate dropped to 8.0% in 2Q/2018 – its lowest level in the past two years. Without new completions, net absorption registered at an above-average 13,500 sq m.

■■With the dropping vacancies, rents improved during the quarter to Php 753.2 per sq m / month with rentals increasing by 4.8% YoY.

■■The rebound in Quezon City’s performance was mostly due to the recovering performance of certain outliers in the submarket. However, we forecast that the submarket may regress to its previous conditions due to the weakness in pre- leasing activity. Furthermore, established townships have also experienced rising vacancies which may hinder recovery.

8 2Q 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 12% 250

1,000 10% 200

800 8% 150

600 6% 100 '000 sq m (GLA) sq'000 m '000 sq m (GLA) sq'000 m 400 4% 50

200 2% 0

0 0% -50 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F

Source: KMC Savills Research Source: KMC Savills Research

GRAPH 25 GRAPH 26 Rental Performance Development Pipeline

Bay Area Grade A Office Rental Growth YoY 250 Bay Area Grade A Office Rental Rates 1,000 20%

200 800 16%

150 600 12%

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

0 0 0% 2017 2018F 2019F 2020F 2021F 2011 2012 2013 2014 2015 2016 2017 2Q2018 Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■Conditions in the Bay Area have remained very tight despite the introduction of Three E-Com, which added 62,000 sq m of leasable space. The vacancy rate was kept low at 0.9% of the total stock.

■■Rents have begun to further accelerate in the thriving submarket which grew by 11.5% YoY and 6.5% QoQ in 2Q/2018. Given the current market conditions, we still foresee rental growth to be above Metro Manila’s average in the coming quarters.

■■Market demand has been able to keep vacancies at a very low level due to the dominance of the POGO sector. The submarket’s 12-month pipeline is very substantial at 186,100 sq m of GLA, but we anticipate the low vacancy rate to hold until next year. In addition, the Bay Area saw the re-emergence of the O&O sector in 2Q/2018 which was on the sidelines since 2017.

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Other Submarkets

■■Conditions in the Makati Fringe have GRAPH 27 become tight as net absorption remained Stock by District strong during the quarter despite not

having new completions. However, the McKinley Office Stock Makati Fringe Office Stock C5 Corridor Office Stock Greater Ortigas Office Stock vacancy rate may return to its previous 1,800 levels in the second half of 2018 with the

introduction of around 11,600 sq m of new 1,500 office space. 1,200 ■■As for the other submarkets, vacancies rose because of the completion pegged at 900 89,700 sq m of GLA. In Greater Ortigas, (GLA) sq'000 m the elevated vacancy rate has been 600 maintained even with a net absorption of 300 16,200 sq m in 2Q/2018.

0 ■■In the coming quarters, the high vacancy 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F

levels in Greater Ortigas and the C5 Source: KMC Savills Research Corridor are expected to persist. On the other hand, we do not foresee occupier GRAPH 28 demand to weaken despite the influx of Development Pipeline by District available office space. McKinley Office Supply Makati Fringe Office Supply C5 Corridor Office Supply Greater Ortigas Office Supply 300

250

200

150 '000 sq m (GLA) sq'000 m

100

50

0 2017 2018F 2019F 2020F 2021F

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 Rockwell Center, Century C5 Corridor covers a stretch The Greater Ortigas located south of Bonifacio City and Circuit Makati, 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 Eastwood City, and Mandaluyong­–which Hill. District, comprise the Makati Nuvo City, Circulo Verde, include , Fringe submarket. Bridgetowne Business Park, Portico, Robinsons and the upcoming Ayala- Cybergate Center and Eton joint-venture project; Greenfield District–and the farther south are Frontera areas of Quezon City that Verde and ArcoVia. surround the Ortigas Center.

10 2Q 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 Q3 2018 the Department of Transportation. PITX GROSS LEASABLE AREA will serve as the ideal transfer point for 17,800 SQ M a wide selection of provincial and in-city NO. OF FLOORS transportations, traversing the busy 5 thoroughfares such as EDSA, Baclaran, FLOOR PLATE (GLA) and Taft. 3,000 SQ M HANDOVER CONDITION The structure also carries 5 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

100

80

60

40 '000 sq m (GLA) 20

0 Y Tower Met Live 100 West Ecoprime Milestone eWestPod Estancia 2 NEX Tower Giga Tower GLAS Tower Jollibee Tower Jollibee Udenna Tower Philflex Building The Finance Centre Avida Capital House Asian Century Center Filinvest Axis Tower 2 Cyberpark Tower Two Centris Cyberpod Five Eastwood Global Plaza The Podium West Tower BGC Corporate2 Center One Griffinstone Building Parkway Corporate Center DoubleDragon Center East DoubleDragon Center West Ayala North Exchange 1 HQ AyalaMall Corporate Center Twenty Five Seven Mckinley Ayala North Exchange 1 BPO Robinsons Cyberscape Gamma Filinvest Cyberzone Pasay Tower A Filinvest Cyberzone Pasay Tower D Vertis North Corporate Center Tower 3 Paranaque IntegratedExchange Terminal Park Triangle Corporate Plaza North Tower 3Q 4Q 1Q 2Q 2018 2019

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

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