Makati, Ortigas office rental rates expected to rise for next two years

Rental rates of office spaces in the Makati and Ortigas business districts will keep on rising as supply continues to tighten and demand for space from business process outsourcing companies rises, an executive of a property services firm said Monday. In a press conference, CB Richard Ellis Philippines, Inc. director Joey M. Radovan said demand for office space has not stopped and will likely continue for another two years. "For 2006, there will still be growth in rentals. Landlords will enjoy much higher rate as against the previous years when it was a tenants’ market," he said. He said rental rates have been increasing every quarter, with rates for Grade A office space in Makati rising to a range of P575 per square meter (sq.m.) per month to P700/sq.m. per month in the fourth quarter of 2005, from P525 to P530/sq.m. per month in the third quarter. In Ortigas, prime office spaces had rental rates of P350 to P375/sq.m. per month in the fourth quarter. Rent for grade B office spaces hit P350 to P375/sq.m. per month in Makati and P275 to P300/sq.m. per month in Ortigas, Mr. Radovan said. Vacancy rates, meanwhile, have hit single-digit levels for prime office space, indicating continued tightening in supply. Data from CB Richard Ellis show that for the fourth quarter 2005, vacancy rates for prime office space in Makati hit 4.9% and 9.75% for Ortigas. Meanwhile, Grade B office spaces have vacancy rates of 19.51% and 20.22% for Makati and Ortigas respectively. Mr. Radovan declined to say by how much rental rates would increase this quarter, saying this would depend on lease renewal arrangements between tenants and the owners of the office spaces. "It will be a moving target," he said. But he cautioned that landlords should not increase rates too much, as demand for space comes from business process outsourcing firms, which "don’t appreciate high rates." Because of the dearth in supply of office spaces and in preparation for possible rate increases in the traditional business districts, BPOs and call centers are looking at setting up shop in alternative business districts, Mr. Radovan said. "Call centers are looking for alternative sites because they expect rates to go up," he said. Among these alternative sites are Fort Bonifacio, Alabang, and Libis, Quezon City. Mr. Radovan said that build-to-suit call centers, such as the five-storey, 18,000 square meter building of HSBC at Fort Bonifacio, will also increase in alternative business districts. He also said that call centers are also looking at possibly moving their administrative operations to alternative sites and converting the space that they take up into more seats. He added that some multinationals and BPOs also continue to expand their presence through setting up specialized disaster coordinating centers in provincial sites. Another rising trend is the use of mall space for call center operations. Mr. Radovan said malls benefit from the arrangement as it means increased business for the other tenants. "One obvious factor is call center agents have the purchasing power to shop," he said. Currently, Robinsons Land Corp. and the SM group are leasing space in their malls to call center operators. Mr. Radovan also said that the Fusion Mall of the MC group in Fonterra Verde has also allocated space for a call center. "It will offer up to 9,000 square meters of space. But the developers are willing to make it bigger or smaller," depending on the needs of the tenant, he said. He also said that CB Richard Ellis, which is marketing the property, is in talks with prospective tenants for the BPO space, but added that the deal will not be signed until late next month, at the earliest. - Jennee Grace U. Rubrico/BusinessWorld