COLLIERS INSIGHTS OFFICE | MANILA | OFFICE SERVICES | 18 NOVEMBER 2020 Alaine Yap Associate Director | Office Services Philippines +63 917878 2859 [email protected] Kevin Jara Senior Manager | Office Services Philippines +63 917865 3846 [email protected] VISIONS OF THE FUTURE The Rebirth of Ortigas COLLIERS INSIGHTS OFFICE | MANILA | OFFICE SERVICES | 18 NOVEMBER 2020 Geographical connectivity, community AN OVERVIEW OF THE ORTIGAS BUSINESS DISTRICT integration, accessibility through Ortigas Center has established itself as one of the main business districts in Metro Manila and infrastructure, and attractive business has helped shape the economy since the 1960s. Being home to institutions such as the Asian costs are amplifying Ortigas Center as an Development Bank, companies like Meralco, Jollibee Food Corporation, San Miguel ideal commercial location: Corporation, and other multinational companies, Ortigas has played a major role in energizing > Being the geographical midpoint of the Philippine economy. Metro Manila, Ortigas Center attracts In Ortigas’ formative years (1970s-1980s), there was still ample office developable land in the labor across the entire metro, already premier business of Makati, and not so much decentralization pressures unlike today. particularly in the East and West. Consequently, the financial and business services sector (where agglomeration benefits were > With the completion of two bridges very strong), multinational companies and embassies remained wedded to Makati back then, and accessibility to the upcoming particularly along Ayala Avenue. When Makati office space vacancy tightened in the 2000s, subway project in the metro, Ortigas Fort Bonifacio opened as an expansion lung for Makati, initially offering rents at similar levels remains as a major gateway and transit to Ortigas. With Fort Bonifacio churning out new office space at a rate of 7.1% versus Ortigas hub. at 1.7% YoY CAGR from 2000 to 2019, Fort Bonifacio has effectively stymied Ortigas’ growth for twenty years. > Ortigas Center remains as a cost- effective business location with the full However today, Ortigas continues to evolve and reinvent itself. features of a central business district. 2 COLLIERS INSIGHTS OFFICE | MANILA | OFFICE SERVICES | 18 NOVEMBER 2020 AN INTEGRATION OF COMMUNITY AND CONNECTIVITY The mini city of Ortigas Center has all the basic quality support required making this central business district one of the preferred locations for businesses. Serving as the geographical midpoint of Metro Manila, Ortigas Center continues to attract labor across the entire metro, particularly in the East (Pasig City and Rizal) and West (San Juan, Mandaluyong, Manila). The city is bustling with retail and hotel options catering to different market segments within a convenient pocket that’s pedestrian friendly. Being bounded by the thoroughfare of EDSA, Shaw Boulevard, and Ortigas Avenue, and having two (2) major transport hubs within its vicinity have made the area of Ortigas accessible for the general public. Yet as time passed and as the activity in Metro Manila grew, so did the congestion of traffic. “Connectivity, between Makati and Ortigas, has deteriorated year-on-year despite the opening of the MRT 3 railway line in the late 1990s. During the old normal, a mere three (3) kilometer drive from EDSA corner Buendia, Makati to EDSA corner Shaw Boulevard, Pasig took an hour. Essentially, the problem was not enough road bridge capacity across the Pasig River.”, Colliers International Philippines Chief Operating Officer, David Young said. He further highlights that Makati and Fort Bonifacio had the advantage of better connectivity to Ninoy Aquino International Airport (NAIA) and the south – where most of the Metro’s industrial activity and residential expansion have happened since the 1970s. Gated subdivisions and other low-rise residential areas have prevented the Makati CBD, Fort Bonifacio, and Ortigas from truly connecting via corridors of commercial activity due to their limited space to expand geographically. Vicinity Map: Hotels, Hospitals, and Retail Complexes in Ortigas CBD Source: Colliers International 3 COLLIERS INSIGHTS OFFICE | MANILA | OFFICE SERVICES | 18 NOVEMBER 2020 BGC-Ortigas Center Link Road Project Metro Manila Subway Stations Map "...Ortigas will be the largest office district that will be directly accessible Source: Department of Public Works and Highway (DPWH), August 2020 from two major The ongoing constructions of the BGC-Ortigas Center Link Road Project and the rail lines in Metro Estrella-Pantaleon bridge (“Rockwell Bridge”) are expected to decrease congestion Manila (i.e. MRT along EDSA and improve the connectivity from Ortigas (Pasig) and Mandaluyong to Line 3 and Mega Makati and Taguig. As of date, the first phase of the BGC-Ortigas Center Link Road Manila Subway)." Project, which will connect the 2 cities from Lawton Avenue in Makati and Sta. Monica Street in Kapitolyo, Pasig (Lawton – Sta. Monica), is at 51% completion. The elevated portion of the bridge is now connected and the columns to the ramps on each side have already been erected. Moreover, the entire bridge is set for completion by the first half of 2021. The four-lane, two-way project will reduce travel time from Fort Bonifacio to Ortigas down to twelve (12) minutes. The Estrella – Pantaleon bridge (“Rockwell Bridge”) is currently being replaced with four (4) lanes, connecting the cities of Mandaluyong and Makati. Apart from travel time saved which promotes welfare and productivity, the bridge is expected to help boost and revive the economy as it allows companies to reach talent from more areas. Ortigas CBD will continue to be a major transit hub due to the anticipated completion of the Metro Manila Subway Project. The flagship infrastructure project of the Duterte administration will cost over Php 355 billion, partially operational by 2022 and fully operational by 2025. This 36-kilometer rail transit line will have 17 stations across the metro, of which two (2) are in Ortigas. Once this project is completed, Ortigas will be the largest office district that will be directly accessible Source: Department of Transportation; Balinbin, Arjay L (2020, June 2) Gov’t adds more stations to from two major rail lines in Metro Manila (i.e. MRT Line 3 and Mega Manila Metro Manila subway, Business World. Retrieved from: https://www.bworldonline.com/govt-adds- more-stations-to-metro-manila-subway/ Subway). 4 Source: Department of Public Works and Highways (as of August 2020) COLLIERS INSIGHTS OFFICE | MANILA | OFFICE SERVICES | 18 NOVEMBER 2020 The Philippine government has also placed focus on improving Rental Growth Back to Post GFC, Php/sqm network performance and quality. Major telco players have already launched 5G services in major cities including the area of Ortigas. 1,800 Annual Growth Rate (CAGR) This is a major milestone for the country as it not only provides a 1,600 5 Years Post GFC Makati CBD 7.80% platform for companies to operate but also allows businesses to 1,400 Ortigas CBD 5.70% innovate and expand online. The implications of a technological 1,200 Fort Bonifacio 6.60% upgrade to companies is limitless as it enables online access, 1,000 presence, and services 24/7. 800 "Office rents are 30 600 – 40% lower than ORTIGAS OFFICE MARKET HIGHLIGHTS square Php meter / 400 costs in other The office market of Ortigas has flourished in the past 10 years with 200 business districts the growth of the traditional, outsourcing, and gaming sectors. - 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 such as Makati and 2000 With a rental growth rate of 5.7%, the real estate cost for operations Bonifacio Global remains competitive. This makes Ortigas a discerning choice for City " companies looking for a cost-effective location with the full features Fort Bonifacio Ortigas Makati CBD of a central business district. Office rents are 30 – 40% lower than Source: Colliers International costs in other business districts such as Makati and Bonifacio Global City. Since the early 90s, Ortigas rents have remained at only two- Sample Computation (Makati to Ortigas Relocation), Php/sqm thirds of Makati rates. This difference can make it possible to recover Item Figure Php/sqm initial fit-out investment costs for a new office from the rental A Current office rent in a Grade A building in Makati CBD 1500.00/month savings over a typical five-year lease term. B Market rent for a Grade A Office Building in Ortigas 850.00/month As shown in the computations on the right, it is achievable to gain a C Rental Cost Difference* 650.00/month slight margin on the difference between the rental cost and the amortized cost of the office build-out (depending on the lease negotiations). Companies can then invest these savings back to the D Typical Cost of new office fit-out** 30,000.00 business in the form of additional overhead or even recruitment E Amortized over the 60-month lease term 500.00/month budget. Relocating to Ortigas based on rental savings can be a long- F Net Savings (C-E) 150.00/month term strategy, too. Since annual lease escalations (i.e. 5% annually) are standard across Metro Manila, there can be a reasonable Rental Cost Difference (%) 43% amount of confidence that Ortigas rental levels will not exceed those Net Savings (%) during the initial 60-month lease 10% at Makati CBD or Fort Bonifacio anytime soon. term Source: Colliers International *Base rent only. Utilities and common area charges are assumed to be the same for Makati and Ortigas **Excluding new technology investment 5 COLLIERS INSIGHTS OFFICE | MANILA | OFFICE SERVICES | 18 NOVEMBER 2020 SUMMARY Ortigas remains well-positioned for companies looking to take advantage of the full features of a central business district at a lower office rental cost since rents in the area offer a significant discount to other business districts.