KMC Research

Metro Office Briefing 1Q 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 CITY 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

2,214,714 sq m BONIFACIO

1,169,972 sq m BAY AREA

439,947 sq m MCKINLEY

METRO MANILA CITIES SAN JUAN CITY CITY OF MANILA CITY 647,387 sq m MAKATI CITY CITY CITY CITY PARAÑAQUE CITY CITY LAS PIÑAS CITY 2 1Q 2020

Metro Manila

GRAPH 1 ■ The upheaval brought by COVID-19 across Stock & Vacancy the globe continues to test the strength of the real estate sector in the . Since the implementation of the Enhanced Community Metro Manila CBDs Grade A Office Stock Metro Manila CBDs Grade A Office Vacancy Rate 8,000 12% Quarantine (ECQ), the immediate market consequences have been nothing but short of dramatic. While the long-term effects remain

6,000 9% uncertain, the industry is beginning to embrace the new status quo. The O&O sector may still come on top while cost-savings will become key 4,000 6% business priorities in the coming quarters. '000 sq '000sq m (GLA)

Overall vacancy managed to sustain its stable 2,000 3% ■ rate at 5.5% in 1Q/2020 – mostly thanks to a muted new supply of only 36,500 sq m during

0 0% the quarter. We expect construction delays 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F to push completion dates of several buildings

Source: KMC Savills Research onto the latter half of the year. With the ongoing suppression of the pandemic, we do not foresee GRAPH 2 them being fast tracked. Supply & Take-Up ■ Prior to the recent disruption, average rents Metro Manila CBDs Grade A Office Supply improved by 3.6% YoY to PHP 1,022.8 per sq m Metro Manila CBDs Grade A Office Take-Up 1,000 / month due to the continued tight conditions in Makati CBD and BGC. Surprisingly, Quezon City

800 has gained footing as the submarket progressed to attract more occupiers.

600 ■ We expect office demand to hit a slump in the '000 sq '000sq m (GLA) 400 coming quarters as companies accommodate a workforce that chooses to work from home. However, the magnitude will depend on how long 200 current circumstances will pan out. With leasing activity forecasted to slow down and present 0 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F an increase to overall vacancies, downward pressure on rental growth for the remainder of the Source: KMC Savills Research year may occur.

TABLE 1 Key Figures - Grade A Office Makati Ortigas Quezon 1Q 2020 Unit BGC Alabang Bay Area CBD Center City PHP/sq m 1,149.0 1,036.8 696.5 697.0 758.0 872.3 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 % 1.7% 3.0% 14.2% 4.5% 11.9% 3.7%

Current Stock sq m 1,191,611 1,829,458 759,357 551,299 739,051 872,157 Development Pipeline sq m 217,219 385,256 457,857 96,089 104,495 297,815 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% 120

1,200 6% 100

1,000 5% 80

800 4% 60

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

400 2% 20

200 1% 0

0 0% -20 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 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 Metro Manila CBDs Grade A Office Rental Index 120 160 30%

100 140 20%

120 10% 80

100 0% 60 '000 sq m (GLA) sq'000 m 3Q 2007 = 100 3Q 2007 80 -10% 40

60 -20% 20

40 -30% 0 2019 2020F 2021F 2022F 2023F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■ Makati CBD experienced another contraction in vacancies, down to 1.7% coming from 2.1% in 4Q/2019. This is attributable to the absence of new supply in the premier financial district during the quarter.

■ As such, average rents grew 3.7% YoY to PHP 1,149.0 per sq m / month. However, given the current condition, rental growth could stagnate in the coming quarters.

■ As organizations reevaluate workforce needs considering the evolving situation, we expect demand for office to be sluggish. Be that as it may, Makati CBD may be able to ride out the storm. The vacancy rate is expected to remain in low to mid-single digits by yearend.

4 1Q 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 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 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%

160 30%

140 20% 200 120 10%

100 0% '000 sq m (GLA) sq'000 m 3Q 2007 2007 3Q = 100 80 -10% 100 60 -20%

40 -30%

20 -40% 0 2019 2020F 2021F 2022F 2023F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■ Due to several projects being delayed, BGC did not see any new completions during the quarter. As a result, vacancy rate shed another 30bps from the previous quarter of 3.3% to 3.0% in 1Q/2020.

■ Rental rates outperformed the rest of the submarkets as it registered a 4.8% YoY growth to PHP 1,036.8 per sq m / month during the quarter. For the coming quarters, growth is expected to plateau resulting from the impacts of COVID-19.

■ Although the pandemic is bringing massive threats across all types of businesses, unexpected opportunities might come about for flexible office solutions as part of companies’ business continuity plans (BCP). While this could stimulate leasing activity, it may not be enough to offset the adverse impact on the office market. Conditions will still be tight, but we do not discount a jump in the near term.

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 1,400 28% 350

1,200 24% 300

250 1,000 20%

200 800 16% 150 '000 sq '000sq m (GLA) '000 sq m (GLA) sq'000 m 600 12% 100

400 8% 50

200 4% 0

0 0% -50 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 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 Metro Manila CBDs Grade A Office Rental Index 400 160 30%

140 20% 300

120 10%

100 0% 200 3Q 2007 = 100 3Q 2007 '000 sq m (GLA) sq'000 m 80 -10%

100 60 -20%

40 -30% 0 2019 2020F 2021F 2022F 2023F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■ Conditions in Ortigas Center continue to look depressed. Despite no new completions during the quarter, net absorption slipped to the negative territory which brought the vacancy rate to inch up to 14.2%.

■ The lack of PEZA-accredited buildings and the inflexibility of new building landlords posed a great challenge for net absorption in the submarket. As a consequence, average rents declined by 0.4% YoY to PHP 696.5 per sq m / month.

■ The major disruption brought by the pandemic is expected to alter market fundamentals in favor of tenants. Landlords are likely to be more aggressive in attracting and retaining tenants as office demand is expected to slacken. We do not foresee improvements in rental growth in the near term as vacancies continue to hover at double digits.

6 1Q 2020

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 '000sq m (GLA)

20

200 5%

0

0 0% -20 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 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 '000 sq m (GLA) sq'000 m 3Q 2007 2007 3Q = 100 80 -10%

20 60 -20%

40 -30% 0 2019 2020F 2021F 2022F 2023F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■ After nine consecutive quarters of vacancy rates settling at low single digits, Alabang CBD succumbed to negative net absorption. The vacancy rate rose to 4.5% in 1Q/2020 coming from 1.4% in the previous quarter.

■ Prior to COVID-19, average rents have been increasing albeit at a moderate pace. For the quarter, it grew 2.7% YoY to PHP 697.0 per sq m / month. Similarly with the other submarkets, we are not optimistic that office demand will pick up rental growth – given the current market circumstances.

■ Proposed development projects that have yet to secure tenants but have begun construction will likely reassess their current leasing strategies as they wait for further market clarity. Due to the current work from home setup, some occupiers may use this time to capitalize and have their empty spaces subleased. On the other hand, we may expect flexible office providers to compensate for the lack in demand.

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

50

200 5%

0

0 0% -50 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 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 Metro Manila CBDs Grade A Office Rental Index 120 160 30%

140 20% 90

120 10%

100 0% 60 3Q 2007 = 100 3Q 2007 '000 sq m (GLA) sq'000 m 80 -10%

30 60 -20%

40 -30% 0 2019 2020F 2021F 2022F 2023F

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■ The laggard submarket in the previous year has been catching up, proving that Quezon City remains an attractive business location not just to traditional occupiers but to the O&O sector as well. Market conditions improved as vacancy rate declined to 11.9% in 1Q/2020 coming from 15.9% in 4Q/2019.

■ Average rents continue to advance as it registered another 1.8% growth YoY to PHP 758.0 per sq m / month. However, the momentum is anticipated to be short-lived depending on how things stack up post COVID-19.

■ On the other hand, the submarket faces muted new supply in the near term which should reduce the upward pressure on vacancies.

8 1Q 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 1,200 9% 250

200

800 6% 150 '000 sq '000sq m (GLA) '000 sq '000sq m (GLA) 100 400 3%

50

0 0% 0 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 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 250 1,400 14%

1,200 12% 200

1,000 10% 150 800 8%

600 6% (GLA) sq'000 m 100 Php / sq m / month / sqPhp m

400 4% 50

200 2%

0 0 0% 2019 2020F 2021F 2022F 2023F 2011 2012 2013 2014 2015 2016 2017 2018 2019 1Q2020

Source: KMC Savills Research Source: KMC Savills Research

MARKET IN MINUTES

■ The introduction of around 29,700 sq m from Four E-Com Center Tower 1 broke the streak of air-tight vacancies in the Bay Area. The vacancy rate climbed to 3.6% during the quarter against 0.3% in 4Q/2019.

■ Despite subdued leasing activity and increase in vacancy in the first quarter, average rents managed to increase by 4.6% YoY to PHP 872.3 per sq m / month.

■ The pandemic has greatly affected POGO operations and may consequently affect demand in the Bay Area in the foreseeable future. On the other hand, due to the limited completions this year, we expect the vacancy rate to settle at 2.3% by end-2020.

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

Other Submarkets

■ The secondary submarkets were off to a GRAPH 27 gloomy start except for McKinley. Makati Stock by District Fringe, C5 Corridor, and Greater Ortigas

recorded negative net absorption during McKinley Office Stock Makati Fringe Office Stock C5 Corridor Office Stock Greater Ortigas Office Stock the quarter for the first time since 2017 2,100 amid absence of new buildings. 1,800 ■ Vacancies in C5 Corridor and Greater 1,500 Ortigas were in the uptrend to 1.4% and 4.3%, respectively. Meanwhile, McKinley 1,200

was able to conclude the first quarter with '000sq m (GLA) around 7,000 sq m of net take up which 900

pulled down its vacancies to its three-year 600 low of 0.8%. 300 Due to limited new supply in C5 Corridor, ■ 0 Greater Ortigas, and McKinley, we expect 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2022F

that vacancies will remain at the low single Source: KMC Savills Research digits. Meanwhile, Makati Fringe will be an outlier as it has the busiest construction GRAPH 28 activity. As such, the overall vacancy rate is Development Pipeline by District anticipated to expand further.

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 1Q 2020

PROJECT FOCUS JEG TOWER @ ONE ACACIA

JEG Tower @ One Acacia is one of LOCATION City’s first premium grade green buildings. It is a Grade A building and a definite future-proof structure in terms GRADE of design. This 22-floor tower is built GRADE A using environment-friendly materials and would operationalize as energy efficient TURNOVER DATE as possible. As a LEED silver pre-certified 3Q 2020 by the US Green Building Council, the building uses less water, energy and GROSS LEASABLE AREA 15,470 SQ M 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 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 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 3Q 4Q 1Q 2020 2021

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

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

Melo Porciuncula Gerold Fernando Executive Director Executive Director Investor Services Transactions and Advisory Services [email protected] [email protected]

Rosario Carbonell John Corpus Executive Director Executive Director Transactions and Advisory Services Transactions and Advisory Services [email protected] [email protected]

Rita Kash Karen Golez Senior Director Senior Director Transactions and Advisory Services Transactions and Advisory Services [email protected] [email protected]

Since 2009, KMC has provided clients with award-winning real estate services. KMC delivers world-class service strengthened with local market expertise. With over 200 employees involved directly in transactions for office, investments, industrial & hotel locators, as well as residential properties, KMC is a full-service real estate firm that has successfully become the leading local firm in the Philippine real estate services industry.

This bulletin is for general information purposes only. Whilst every effort has been made to ensure its accuracy, KMC accepts no liability whatsoever for any direct or consequential loss arising. The bulletin is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from KMC.

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