KMC KMCMAG SavillsGroup Research Metro Manila Metro Manila Office Briefing 1Q 2017 Metro Manila | Office Briefing Metro Manila Office Submarkets Future Stock (2020) DEVELOPMENT PIPELINE (2017-2020) CURRENT STOCK MAP 1 827,617 sq m 442,901 sq m QUEZON CITY C5 CORRIDOR 606,399 sq m 396,668 sq m ORTIGAS CENTER MAKATI FRINGE 459,652 sq m GREATER ORTIGAS 1,218,447 sq m MAKATI CBD 2,044,144 sq m BONIFACIO GLOBAL CITY 796,064 sq m BAY AREA 400,860 sq m MCKINLEY METRO MANILA CITIES QUEZON CITY SAN JUAN CITY CITY OF MANILA MANDALUYONG CITY 652,115 sq m MAKATI CITY PASIG CITY ALABANG PASAY CITY TAGUIG CITY PARAÑAQUE CITY MUNTINLUPA CITY LAS PIÑAS CITY 2 1Q 2017 Metro Manila GRAPH 1 ■ During 1Q/2017, Metro Manila added 162,200 sq Stock & Vacancy m of office space. BGC accounted for two thirds of the new supply with the completion of W City Metro Manila CBDs Grade A Office Stock Center and Citibank Plaza. Metro Manila CBDs Grade A Office Vacancy Rate 6,000 12% ■ Performance across submarkets was mixed. BGC, 5,000 10% Alabang and Bay Area experienced a decline in vacancies despite an influx of new supply. There 4,000 8% was impressive net take-up in these submarkets, but the overall vacancy rate in Metro Manila 3,000 6% increased to 2.4%, due to decreased occupancy '000 sq (GLA) m in Makati CBD and Quezon City. 2,000 4% 1,000 2% ■ Although the vacancy rate was held in single digits, rental growth continued to normalize at 3.7% 0 0% YoY. The Makati CBD maintained its premium 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F in the capital after rentals grew by 3.8% YoY – Source: KMC Savills Research outperforming other submarkets. GRAPH 2 ■ We are still expecting about 781,800 sq m of Supply & Take-Up additional office supply within the year. Downward pressure on rents should persist in the coming Metro Manila CBDs Grade A Office Supply quarters, however market appetite remains largely Metro Manila CBDs Grade A Office Take-Up 1,000 intact as evidenced by the brisk absorption of new completions during the quarter. 800 ■ The better-than-expected performance in the first three months should ease concerns of double 600 digit vacancy rates in Metro Manila this year. As occupier demand tries to keep up with the '000 sq (GLA) m 400 upcoming supply, vacancies may stay relatively elevated in the coming years. 200 0 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F Source: KMC Savills Research TABLE 1 BONIFACIO GLOBAL CITY Key Figures - Grade A Office 1Q 2017 Makati Ortigas BGC Alabang Quezon City Bay Area CBD Center Average net rental rate 1,027.7 906.1 656.5 628.6 718.5 701.3 (Php/sq m/month) Upper net rental rate 1,450.0 1,200.0 825.0 675.0 800.0 750.0 (Php/sq m/month) Vacancy rate (%) 1.9% 0.9% 1.0% 0.9% 11.9% 0.2% Current stock (sq m) 1,080,863 1,259,930 542,610 329,508 463,183 363,175 Development pipeline 137,584 784,214 63,789 322,607 364,434 432,889 2017-2020 (sq m) * Makati CBD includes Premium Offices ** Minor changes were made in Ortigas Center’s stock and pipeline, please see page 6 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% 100 1,200 12% 80 1,000 10% 60 800 8% 40 600 6% '000 sq (GLA) '000 m '000 sq (GLA) '000 m 20 400 4% 0 200 2% 0 0% -20 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 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 30% 140 20% 80 120 10% 60 100 0% 40 '000 sq (GLA) '000 m 3Q 2007 = 2007 3Q 100 80 -10% 60 -20% 20 40 -30% 0 2016 2017F 2018F 2019F 2020F Source: KMC Savills Research Source: KMC Savills Research MARKET IN MINUTES ■ A large amount of contract expirations at the beginning of the year resulted in negative net-take up during 1Q/2017. With no new completions, the increase in vacancy was modest, from the extremely low 0.6% in 4Q/2016 to just 1.9% in 1Q/2017. ■ In spite of this, rental rates continued to grow at a healthy rate of 3.8% YoY – beating other CBDs. ■ Given the thin pipeline and the strong demand for office space in the Makati CBD, vacancies are expected to remain low in the coming quarters. 4 1Q 2017 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 2,100 21% 500 1,800 18% 400 1,500 15% 300 1,200 12% 200 900 9% '000 sq (GLA) '000 m '000 sq (GLA) '000 m 100 600 6% 0 300 3% 0 0% -100 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 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 500 Metro Manila CBDs Grade A Office Rental Index 160 30% 140 20% 400 120 10% 300 100 0% 200 '000 sq (GLA) '000 m 3Q 2007 =3Q 100 80 -10% 60 -20% 100 40 -30% 0 2016 2017F 2018F 2019F 2020F Source: KMC Savills Research Source: KMC Savills Research MARKET IN MINUTES ■ Amongst submarkets, BGC had the highest additional supply for the period, with a GLA of 107,600 sq m. Despite that, the vacancy rate remained extremely low as the additional supply was fully leased out. ■ The sustained demand, as evidenced by the tight vacancy, supported rental growth of 3.2% YoY and averaged Php 906.1 per sq m / month. ■ Given the aggressive development pipeline, a substantial increase in stock is expected in the horizon. Hence, a considerable rise in vacancy is anticipated in the coming quarters. 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% 120 700 7% 100 600 6% 80 500 5% 60 400 4% 40 '000 sq (GLA) '000 m 300 3% sq (GLA) '000 m 20 200 2% 100 1% 0 0 0% -20 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 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 50 Metro Manila CBDs Grade A Office Rental Index 160 30% 140 20% 40 120 10% 30 100 0% 20 '000 sq (GLA) '000 m 3Q 2007 =3Q 100 80 -10% 60 -20% 10 40 -30% 0 2016 2017F 2018F 2019F 2020F Source: KMC Savills Research Source: KMC Savills Research MARKET IN MINUTES ■ Net take-up reversed in 1Q/2017 and marginally increased vacancies to 1.0% of stock from 0.5% in the previous quarter. ■ The submarket’s performance had minimal impact as vacancies were kept historically low which supported the rental growth of 3.2% YoY. ■ New supply entering the Ortigas Center will be modest with just the completion of IBP Tower and Robinsons Cyberscape Gamma. Leasing activity in the CBD suggests that occupier demand should be able to absorb the new supply with ease. ** KMC Savills has redefined the Ortigas Center to be aligned with the estate boundaries with the introduction of Greater Ortigas which resulted in the minor changes in stock and supply. 6 1Q 2017 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% 180 150 500 25% 120 400 20% 90 300 15% 60 '000 sq (GLA) '000 m '000 sq (GLA) '000 m 200 10% 30 100 5% 0 0 0% -30 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 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 160 Metro Manila CBDs Grade A Office Rental Index 160 30% 140 20% 120 120 10% 100 0% 80 '000 sq (GLA) '000 m 3Q 2007 =3Q 100 80 -10% 40 60 -20% 40 -30% 0 2016 2017F 2018F 2019F 2020F Source: KMC Savills Research Source: KMC Savills Research MARKET IN MINUTES ■ Alabang performed well after experiencing another quarterly decline in vacancy in spite of the additional supply from Capella’s 18,100 sq m of GLA.