Due to a combination of strong demand and construction delays last year, the supply of new office space will more than double to 1.4 million square meters this year, according to property consultancy JLL. Last year, the supply that came in reached only 627,300 square meters. This year marks the first time that additional office supply will exceed the one-million-square-meter mark.
The 121-percent expected rise in new office supply is the highest since at least 2011 and comes after a growth of six percent in 2016 and two percent in 2015. Previously, the pace of annual increases in office space peaked at 49 percent in 2014 and 22 percent in 2011.
"Demand for office space in this part of the world remains very, very strong, particularly here in Manila. We have seen a very strong growth in the BPO industry continuing to drive the office market," said Anthony Couse, CEO of JLL Asia Pacific. "We are very confident on the Philippines. We think that it’s an attractive location given its low attrition, relatively low labor costs and low rental fees. It’s a very sought-after location for BPOs.”
The sectors that took up most of the new office space demand in 2016 were business process outsourcing (46 percent), information technology (12 percent) and banking and finance (12 percent), according to JLL.
The big surge in new office space supply presents more opportunities for businesses that provide services to offices such as furniture and equipment retailers, cleaners as well as interior designers, said Claro Cordero, JLL's research, consultation and valuation chief.
He said many of the new office buildings opening this year were supposed to have been completed last year but faced construction delays. "There had been a lot of delays for completion last year. For 2016, we projected 1.1 million square meters but the other 400,000 square meters got delayed," he said
Despite the surge in new office space supply, Cordero said it's highly unlikely that office rentals will stop rising, much less fall. "We don’t think it will reverse easily," he says of the continued rise in rental and lease rates. "For the last four years, we’ve seen our growth rate at between four to five percent, now it’s at 3.5 to 4.5 percent.”
In January 2017, rent for various kinds of office space went up by as much as 12 percent from a year ago in the Makati central business district and Bonifacio Global City. It rose by a tenth in the Bay City area near the Entertainment City casino strip in Pasay, the Ortigas business district and other areas of Makati City. Average rent stayed flat in the Alabang area in Muntinlupa City and Quezon City.
“Because Quezon City has a large area, you can accommodate a large footprint as well,” explained Lizanne Tan, JLL regional director and head of tenant representation.
Pauline Macaraeg is Entrepreneur PH's data journalist. Follow her on Twitter @paulinemacaraeg