Prospects for the Philippine property sector remain bullish as office space vacancies continue to shrink in the Makati central business district (CBD) demand for Metro Manila residential units increases.

In its market overview for July, property services firm Colliers International (Philippines), Inc. said rents at Makati CBD office buildings are all enjoying double-digit increases, with some hitting pre-1997 Asian financial crisis levels.  

‘Take note that better quality [office] buildings are now asking for P550 to P650 per square meter [per month]. This approximates the 1995 rental level when lease rates were starting to significantly escalate’ Colliers said in the report, which was released over the weekend.

Residential developers, meanwhile, continue to apply for licenses to sell units on strong demand buoyed by overseas Filipino worker (OFW) remittances, it said.

Colliers, however, was not as optimistic for retail segment as it echoed an earlier position that saturation and a shifting consumer preference for flea markets would negatively impact on rental rates.

Colliers said rental rates for premium office space increased 16.7% from the first quarter, to average P770 per square meter per month, as vacancies went down to 0.7% in the second quarter of 2006 from 1.2% in the first quarter of the same year. Philamlife Tower, RCBC Plaza, and Enterprise charge as much as P800-P850/sq. m./month for office space, the report said.

Rent rates for the Grade A segment increased by 17% quarter on quarter to average P578/sq. m/month even as a rise in vacancy rates to 7.9% for the second quarter from 5.7% was noted. With the segment beating yearend expectations of P561/sq. m./month, Colliers upgraded its yearend forecast for this sector to P583/sq. m./month.

Grade B office spaces, or old office buildings in the Makati central business district, also saw a 12% increase in rent to P385/sq. m./month in the second quarter as vacancies went down to 6.3% from 8.3% the previous quarter, indicating that locators are now willing to rent space in older buildings. Colliers expects vacancy rate to further fall to 5% by yearend.

Overall vacancy rate in the Makati CBD eased to 6% in the second quarter from 7% in the first quarter, Colliers said.

Colliers Philippines Director for Research and Consultancy Richard Raymundo told BusinessWorld the escalation in rental rates is driven by demand and the lack of office space.

‘Demand is still coming from business process outsourcing (BPO),’ Mr. Raymundo said.

Neighboring areas are expected to take advantage of the lack of space in the Makati central business district, Colliers said.

‘Developers are now taking advantage of the lull in new supply with projects being launched in alternative locations such as Fort Bonifacio, Eastwood, Reclamation Area, Villamor Newport and Quezon City. This is due to cheaper land values in other locations relative to the CBD, making the financial return on BPO and build-to-suit offices more viable,’ the firm said.

It said the residential sector is also showing signs of improvement, as applications for licenses to sell at the Housing and Land Use Regulatory Board (HLURB) increased by 9.2% to 132,946 residential units in the first five months against the same period last year.

For socialized housing, licenses issued increased 23% to 27,376 units, while middle income housing registration went up around 20% to 26,138 units. Licenses for high rise residential projects also went up by 34% to 9,448 units while those issued for the low cost units declined by 9% to 14,027 units, HLURB data show.

‘The increased OFW remittance has boosted this sector as remittances increased by 15% in the first half of the year,’ Colliers said, citing Bangko Sentral ng Pilipinas figures which show that remittance from overseas workers hit billion in the first half of the year and .1 billion in June 2006 alone.

In the Makati CBD, luxury three-bedroom unit rents increased 2% quarter-on-quarter to average P430/sq. m./month, Colliers said.

‘We expect rents to further escalate by nearly 8% in the remainder of the year. End-2006 rent is forecast at P464 per square meter per month or P120,527 per unit … Residential lease rates are now approximating late 1995 levels,’ the property services firm added.

Colliers, however, reiterated that having too many retail spaces and the growing following for flea markets will hurt the retail segment.

A previous report in February already expressed concern that lease rates for Metro Manila mall space would grow at a lethargic pace due to weaker same store sales and the public’s growing inclination to shop in bazaars. Same-stores sales involve establishments that have been open for more than a year.

A decline in same-store sales would technically affect rental rates of malls because a portion of lease payments come from the mall operators’ share in the gross revenues of tenants.

In its July 2006 report, Colliers estimated the stock of retail space in Metro Manila to have increased by 10% quarter on quarter to 4.3 million square meters with the completion of the 386, 224-sq. m. SM Mall of Asia and the 30,000-sq. m. The Block building in SM City North Edsa during the period.

Due to the substantial increase in the retail space supply, Colliers said, retail vacancy rate as at end-June increased by 15%.

The company also noted that lease rates for Metro Manila malls remained flat quarter on quarter, with effective rates in Ayala Center keeping at an average of P1,185/sq. m./month, and those in Ortigas unchanged at P935/sq. m./month.

‘Moving forward, we believe that the saturation of retail space in Metro Manila coupled with the general preference for bargain items are expected to exert pressure on rents. Our forecast rent by end 2006 is an expansion of only 5% or an average of P1,207 per square meter per month in Ayala Center and P965 in Ortigas,’ the company said.

Colliers International Philippines is the local unit of global property services firm Colliers International. The local arm is engaged in property management, real estate disposition and purchase, and other services.