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Metro Manila Office Briefing 3Q 2016 | Office Briefing

Metro Manila Office Submarkets Future Stock (2019)

DEVELOPMENT PIPELINE (2016-2019) CURRENT STOCK

2,023,329 sq m

1,188,447 sq m CBD

862,352 sq m BAY AREA

781,019 sq m

745,988 sq m

609,491 sq m

442,901 sq m C5 CORRIDOR

400,860 sq m MCKINLEY

377,523 sq m MAKATI FRINGE

2 3Q 2016

Metro Manila

GRAPH 1 ■■The market was relatively quiet in Metro Manila Stock & Vacancy with fewer supply additions due to several building completions postponed to later quarters.

Metro Manila CBDs Grade A Office Stock In 3Q/2016, only 18,000 sq m of new office Metro Manila CBDs Grade A Office Vacancy Rate 6,000 12.0% supply was turned over in BGC.

5,000 10.0% ■■Occupier demand was still strong though, as the market recorded a net absorption of 24,900 sq 4,000 8.0% m which resulted with the vacancy rate to further drop to 2.7% in 3Q/2016. 3,000 6.0%

'000 sq m (GLA)sq m '000 ■■In 4Q/2016, supply additions should return as the 2,000 4.0% market is expected to introduce another 193,300 sq m of Grade A office space. Although we 1,000 2.0% expect office demand to continue to be robust,

0 0.0% we foresee a gradual increase in vacancies in 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F the coming quarters with the completion of an

Source: KMC Savills Research unprecedented new supply of 871,900 sq m in the next 12 months. GRAPH 2 Supply & Take-Up ■■Overall, despite tightening vacancies, average rents rose moderately by 3.4% YoY, a slight

Metro Manila CBDs Grade A Office Supply slowdown from 4.4% YoY in 2Q/2016. However, Metro Manila CBDs Grade A Office Take-Up 900 Quezon City witnessed its first decline in

800 rental rates since 2010 due to the high level of availabilities in the area. 700

600 ■■Looking ahead, the expected new deliveries 500 over the next 12 months should put additional

'000 sq m (GLA)sq m '000 400 pressure on lease rates in Metro Manila as the vacancies are seen rising. 300

200

100

0 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

Source: KMC Savills Research

TABLE 1 Key Figures - Grade A Office 3Q 2016 Makati Ortigas BGC Alabang Quezon City Bay Area CBD Center Average net rental rate 1,010.8 889.6 643.7 617.4 696.0 699.2 (Php/sq m/month)

Upper net rental rate 1,450.0 1,200.0 800.0 650.0 750.0 750.0 (Php/sq m/month)

Vacancy rate (%) 1.2% 2.4% 0.5% 5.2% 9.7% 0.9%

Current stock (sq m) 1,080,863 1,152,313 635,199 311,407 463,183 326,737

Development pipeline 107,584 871,016 110,789 298,083 317,836 535,615 2016-2019 (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 14.0% 100

1,200 12.0% 80

1,000 10.0% 60

800 8.0% 40

600 6.0% 20 '000 sq '000sq m (GLA) '000 sq m (GLA)sq m '000

400 4.0% 0

200 2.0% -20

0 0.0% -40 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

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 100 Metro Manila CBDs Grade A Office Rental Index 160.0 30.0%

140.0 20.0% 80

120.0 10.0% 60

100.0 0.0%

40 80.0 -10.0% (GLA)sq m '000 3Q 2007 = 100 3Q 2007

60.0 -20.0% 20

40.0 -30.0% 0 2015 2016F 2017F 2018F 2019F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■With no additional supply coupled with the net take up of 9,858 sq m, the Makati CBD’s vacancy rate further pulled down to 1.2% in 3Q/2016.

■■Although vacancies continue to tighten, rental rates during the quarter have grown just steadily at 3.2% YoY. In addition, the country’s premier CBD still commands the highest average rental rate of Php 1,010.8 per sq m/month.

■■New office supply in Makati CBD will be scarce in the coming quarters with just the reopening of the Insular Life Makati building in 1Q/2017. As a result, we expect the vacancy rate to remain tight next quarter which would raise the likelihood of accelerating rental rates due to the limited available office stock.

4 3Q 2016

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 1,800 18.0% 400

1,600 16.0% 350

1,400 14.0% 300

1,200 12.0% 250

1,000 10.0% 200

800 8.0% 150 '000 sq '000sq m (GLA) '000 sq m (GLA)sq m '000 600 6.0% 100

400 4.0% 50

200 2.0% 0

0 0.0% -50 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

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 450 Metro Manila CBDs Grade A Office Rental Index 160.0 30.0% 400

140.0 20.0% 350

120.0 10.0% 300

250 100.0 0.0% 200

80.0 -10.0% '000sq m (GLA) 3Q 2007 = 100 3Q 2007 150

60.0 -20.0% 100

50 40.0 -30.0% 0 2015 2016F 2017F 2018F 2019F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■Although there was only 18,000 sq m of additional office space in 3Q/2016, demand for office space remained robust in BGC as the vacancy rate further dropped to 2.4%.

■■The average rental rate in BGC stood at Php 889.6 per sq m/month at the end of 3Q/2016. The healthy rental growth of 3.4% YoY and 0.9% QoQ was a slight uptick from 2Q/2016’s rental growth of 3.1% YoY and 0.5% QoQ.

■■Year to date, net absorption of 198,200 sq m has exceeded office completions of 170,400 sq m. With 40% of BGC’s incoming office space in the next 12 months already pre-leased, we still expect the strong demand to carry over to the next quarter.

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 800 8.0% 180

160 700 7.0% 140 600 6.0% 120 500 5.0% 100

400 4.0% 80

60 '000 sq '000sq m (GLA) '000 sq m (GLA)sq m '000 300 3.0% 40 200 2.0% 20 100 1.0% 0

0 0.0% -20 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

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 100 Metro Manila CBDs Grade A Office Rental Index 160.0 30.0%

140.0 20.0% 80

120.0 10.0% 60

100.0 0.0%

40 80.0 -10.0% (GLA)sq m '000 3Q 2007 = 100 3Q 2007

60.0 -20.0% 20

40.0 -30.0% 0 2015 2016F 2017F 2018F 2019F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■With no additional supply during the quarter, vacancies further tightened to 0.5% in 3Q/2016 from 1.2% in 2Q/2016. With sustained occupier demand despite the limited available office supply, 4,384 sq m was further taken up.

■■With the low vacancy rate, the average rental rate further improved to Php 643.7 per sq m/month after posting modest growth of 3.1% YoY and 0.7% QoQ in 3Q/2016.

■■New supply in the coming quarters is expected to increase vacancies from its current level but will still be manageable as demand is still seen to be healthy. In 2017, only two office buildings will be completed which will add 67,400 sq m in Ortigas Center.

6 3Q 2016

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 30.0% 140

120 500 25.0% 100

400 20.0% 80

60 300 15.0% 40 '000 sq '000sq m (GLA) '000 sq m (GLA)sq m '000 200 10.0% 20

0 100 5.0% -20

0 0.0% -40 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

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 140 Metro Manila CBDs Grade A Office Rental Index 160.0 30.0% 120 140.0 20.0% 100 120.0 10.0% 80 100.0 0.0% 60

80.0 -10.0% '000sq m (GLA) 3Q 2007 = 100 3Q 2007 40 60.0 -20.0% 20 40.0 -30.0% 0 2015 2016F 2017F 2018F 2019F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■In 3Q/2016, there was an increase in the vacancy rate to 5.2% after occupancies declined in the Filinvest Three and Vector Two buildings during 3Q/2016.

■■However, rental rates remained stable despite the uptick in vacancies in Alabang. The average rental rate posted a growth of 2.0% YoY to Php 617.4 per sq m/month for 3Q/2016.

■■Looking ahead, the additional 77,900 sq m of new office space to be completed in 4Q/2016 is expected to further increase the average vacancy rate to double digits. The rise in vacancies is estimated to result in slow rental growth in the immediate term, but we also do not discount the possibility rentals may stagnate if elevated vacancies are sustained.

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 600 30.0% 140

120 500 25.0% 100 400 20.0% 80

300 15.0% 60 '000 sq '000sq m (GLA) '000 sq m (GLA)sq m '000 40 200 10.0% 20 100 5.0% 0

0 0.0% -20 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

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 140 Metro Manila CBDs Grade A Office Rental Index 160.0 30.0% 120 140.0 20.0% 100 120.0 10.0% 80 100.0 0.0% 60

80.0 -10.0% '000sq m (GLA) 3Q 2007 = 100 3Q 2007 40 60.0 -20.0% 20 40.0 -30.0% 0 2015 2016F 2017F 2018F 2019F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■The average rental rate in Quezon City dropped by -0.6% YoY and -2.6% QoQ in 3Q/2016 as existing vacancies have lingered for the third consecutive quarter. This has pressured landlords to increasingly offer incentives and reduce base rates. For comparison, in 3Q/2016, the vacancy rate was recorded at 9.7% versus its five year average of 1.2%.

■■Absorption has been relatively slow for the completed buildings early this year and future performance may likely follow its current pace. Therefore, the average vacancy may further increase in the coming months as the upcoming supply is expected to exceed the take-up.

■■With vacancies expected to remain elevated in the coming quarters due to the additional 82,200 sq m of new office space in 2017, downward pressure on rents should persist. We may see the average rentals to further drop as landlords try to fill their available office stock amidst the influx of new offices.

8 3Q 2016

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 600 30.0% 200 180 500 25.0% 160 140 400 20.0% 120 100 300 15.0% 80 '000 sq '000sq m (GLA) '000 sq m (GLA)sq m '000 60 200 10.0% 40

100 5.0% 20 0 0 0.0% -20 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F

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 1,000.0 20.0%

900.0 18.0% 200 800.0 16.0%

700.0 14.0% 150 600.0 12.0%

500.0 10.0% 100 400.0 8.0% '000sq m (GLA)

Php / sq m / month / sqPhp m 300.0 6.0% 50 200.0 4.0%

100.0 2.0% 0 0.0 0.0% 2015 2016F 2017F 2018F 2019F 2011 2012 2013 2014 2015 3Q2016 Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■■The average rental rate in the Bay Area has started to stabilize at Php 699.2 per sq m/month after posting growth of just 3.8% YoY in 3Q/2016 compared to 6.4% in 2Q/2016.

■■The vacancy rate is still tight at 0.9% despite slightly increasing from 0.4% in 2Q/2016. Moving forward, the vacancy rate in the Bay Area may marginally rise by 4Q/2016 with the expected addition of 37,400 sq m of new office supply from the Biopolis and iMet buildings.

■■However, a record 177,000 sq m of new office space will come on line in the Bay Area in 2017 – mostly from the office buildings of Double Dragon in the Meridian Park. Although office demand has historically been robust, the scale of the incoming supply may pose as a tough challenge. Thus, we foresee the vacancy rate to slowly climb to double digits in the coming quarters, creating downward pressure on rentals.

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

Other Submarkets

■■There was no additional supply in C-5 GRAPH 27 Corridor, McKinley and Makati Fringe Stock by District for 3Q/2016. New supply from these submarkets will be relatively low in McKinley Office Stock Makati Fringe Office Stock C5 Corridor Office Stock 4Q/2016 with just three of the McKinley 1400 West Campus buildings to be completed, consisting of around 28,000 sq m. 1200

1000 ■■In the coming years, the Makati Fringe and C-5 Corridor will add almost 443,500 800

sq m of leasable space until 2019. These 600 submarkets are expected to continue to (GLA)sq m '000 complement the main business districts 400

in their respective areas as they grow 200 substantially in scale. 0

■■The upcoming townships of Bridgetown

Business Park by Robinsons Land Source: KMC Savills Research and ArcoVia City by Megaworld will dominate the C-5 Corridor office pipeline GRAPH 28 in the coming years. Looking ahead, we Development Pipeline by District should expect more office buildings in McKinley Office Supply this submarket as these townships are Makati Fringe Office Supply C5 Corridor Office Supply in its early stages with ample land for 250 development.

200

150 '000 sq m (GLA)sq m '000 100

50

0 2015 2016F 2017F 2018F 2019F

Source: KMC Savills Research

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

MCKINLEY MAKATI FRINGE C-5 CORRIDOR

The Mckinley submarket is located , Century City and The C-5 Corridor submarket stretches south of Bonifacio Global City, , as well as areas from in Quezon City covering Mckinley West and Mckinley outside the Makati Central Business down to Arcovia City in City. Hill. District, comprise the Makati Fringe The submarket consists of seven submarket. microdistricts which include the upcoming Ayala-Eton joint-venture project and Bridgetown Business Park by Robinsons Land.

10 3Q 2016

project focus ArTHALAND CENTURY PACIFIC TOWER

This is the ArthaLand Century Pacific location Tower, a premium office building at the BONIFACIO GLOBAL CITY corner of 5th Avenue and 30th Street. Grade The project is located at a prime block, Premium just across Shangri-La at the Fort, the Turnover Date Central Square Mall, and near the future Q2 2017 Philippine Stock Exchange building. Gross Leasable Area 31,045 sq m The premium grade building is designed No. of Floors by SOM New York, the same group that 30 penned the One World Trade Center in Floor Plate (GLA) New York and Burj Khalifa in Dubai. 1,550 sq m - Low Zone 1,600 sq m - High Zone In all aspects, this project, that is Handover Condition designed to hold the headquarters of Warm Shell multinational companies, is fully green. It peza is on target to achieve dual green building Yes certification from both LEED and BERDE. 24 / 7 capability In fact, it is already LEED pre-certified Yes Gold and won this year’s Philippines’ backup power Property Award as the Best Green 100% Building in the country.

GRAPH 29 12-month Supply Forecast by Building

60

50

40

30

20 '000 sqm (GLA) 10

0 iMet Capella Vista Hub The CurveThe IBP Tower Ore Central Ore World Plaza World Inoza Tower The Biopolis Vector Three Vector Cyber Sigma W City Center One Park Drive Menarco Tower Menarco Eastfield Center Six West Campus Five West Campus Insular Life Building Eight WestEight Campus Filinvest Axis Tower Axis Filinvest Tower 1 Alliance Tower One Townsquare Townsquare One Place The PSE One PSE at The Bonifacio Circuit Corporate Corporate Circuit Center 1 Corporate Circuit Center 2 The 30thThe Corporate Center South Park Corporate Corporate Center Park South DoubleDragon Plaza Tower 1 DoubleDragon Plaza Tower 2 ArthaLand Century Tower Century Pacific ArthaLand Filinvest Cyberzone Tower 2 Tower Pasay Cyberzone Filinvest 3 Tower Pasay Cyberzone Filinvest High Street South Corporate Plaza I Plaza Corporate South Street High Vertis NorthCorporate Vertis Center Tower 1 NorthCorporate Vertis Center Tower 2 4Q 1Q 2Q 3Q 2016 2017

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

kmcmaggroup.com/research | 11 KMetroMC Manila S |avills, Office Briefing Inc. Please contact us for further information

Michael McCullough Rosario Carbonell Managing Director Director - Office Leasing [email protected] [email protected]

Yves Luethi Gerold Fernando Vice President Associate Director - Office Leasing [email protected] [email protected]

Antton Nordberg Lana Osmeña Head of Research General Manager - [email protected] [email protected]

Melo Porciuncula Francis Fuellas Head of Investments Head of Asset Management [email protected] [email protected]

KMC MAG Group

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