Property consultant KMC Savills expects a more robust office space market in the provinces, particularly in key cities such as Cebu, Davao, Iloilo, and Bacolod.
John Corpus, KMC Savills executive director, noted growth will continue to be driven by the information technology-business process management (IT-BPM) industry which can withstand any supply pressure amid businesses’ regional expansion.
Joshua De Las Alas, associate director, said space development is now dispersing into other major cities, though Cebu continues to hold the bulk of the supply at half of spaces outside Metro Manila.
This, however, is a decline from its 70 percent share in 2015, according to De Las Alas.
Currently, Metro Cebu still has the highest office space stock among all regional cities at around 1.2 million square meters (sq.m.).
This is followed by Clark with more than 430,000 sq.m. and Iloilo, Bacolod and Davao which have a total 200,000 sq.m..
“Given the increased demand for smaller markets such as Iloilo, Bacolod, and Davao, we expect developers to take interest and start investing in office buildings or even new business districts in these areas going forward,” De Las Alas said.
KMC Savills expects more than 400,000 sq.m. of new office spaces to come online within the next two years, with most located in Cebu and Iloilo at around 140,000 sq.m. each.
For Clark, the company expects around 70,000 sq.m. with the addition of West Aeroparque 3, 4 and 5. For Bacolod and Davao, KMC Savills sees a couple of more buildings, but in noticeably smaller cuts of 20,000 sq.m. or less.
De Las Alas noted Iloilo and Davao currently have single digit vacancy rates at 8.1 percent and 6.4 percent respectively, which may “put an upward pressure on rents and eventually warrant a much higher supply pipeline.”
“So going forward, we do expect VisMin cities to retain healthy vacancy rates as the IT-BPM sector further expands to the region,” De Las Alas said.
De Las Alas noted in terms of rent, Iloilo and Cebu have the most expensive rates among the cities at P600 per sq.m.
“Some markets such as Davao and Bacolod tend to have lower average return mainly due to the absence of high quality office stock within those cities,” he said.
Rent in Davao is at P483.6 per sq.m. while rent in Bacolod averages at P412.3 per sq.m.
“Excluding Clark, we expect rents to return or at least retain a positive trajectory in the coming quarters. And the type of vacancy rates and the lack of supply will likely push the rents upwards in the next few quarters,” De Las Alas said.
Of Clark, Corpuz noted the market continues to struggle with its vacancy rate rising to 33.6 percent in the first half of the year as it suffered from the exodus of Philippine offshore gaming operations.
Rent is currently at P502.30 per sq.m., but KMC Savills expects this to drop below P500 per sq.m. due to high vacancies and the upcoming supply.
Cha Carbonell, KMC Savills chief operating officer, said a typical lease term for office space in the cities outside Metro Manila runs between three and five years, depending on which region or city.