Manila office spaces still among cheapest in Asia

By JENNEE GRACE U. RUBRICO, Sub-Editor/BusinessWorld Rental rates of prime office spaces in business districts in Metro Manila are still among the lowest in Asia Pacific, making the metropolis a preferred site for business process outsourcing companies and other multinational firms, property services firm Colliers International said. In its November 2006 Asia Pacific Office Market Overview, Colliers said average rental rate of prime office spaces in Manila, which tied with New Delhi and Jakarta at around $15 per square foot per year, is the fifth lowest in the region. Bangalore, which rents out prime office space at $10 per square foot per year, was the lowest, followed by Wellington (at around $11 per square foot per year), Chennai and Aukland (around $12 per square foot per year). The study also said Metro Manila business districts are expected to increase prime office rentals by 15% in the next 12 months due to lack of space. The higher rental rates, however, are not seen to affect the attractiveness of Manila as an investment site since, even with the increase, the rents will still be low in dollar terms compared with others in the region, property analysts said. Rental rates in the Makati central and Ortigas business districts averaged P670 per square meter per month as of end-third quarter, the study said. Analysts said some prime office spaces are now being leased out for P850 per square meter per month. In the next 12 months, they said, rental rates are likely to hit P1,000 per square meter per month. The Asia Pacific study, released by local unit Colliers International Philippines Tuesday, ranks 19 markets in the region. Hong Kong had the most expensive rental rates for prime office spaces at nearly $80 per square foot per year, followed by Singapore, at over $50, then Sydney, at a little under $50. The study, however, did not include Tokyo in the rankings. Colliers Philippines Director for Research and Consultancy Richard Raymundo told BusinessWorld that given its low rental rates, Manila will continue to be attractive to BPOs. "If you look at the Philippines, our office rates are nearly at the peak. In a matter of 12 months, we can easily reach P1,000 [per square foot] — the highest that Manila has actually gone in 1996, 1997. But in 1996, the exchange rate was at P26 to $1. Now, we’re at around P50 to $1. In dollar terms, we’re still cheap. We’re definitely cheaper than other Southeast Asian countries," he said. CASUALTY But another analyst said the increase in rates might make the business districts less attractive to the price-sensitive contact centers. Asian Institute of Management professor Danilo Antonio said as spaces in the business districts become more expensive, contact centers will be forced to go to the periphery and to other, more isolated areas. "Over time, as the office space segment becomes more attractive, building owners will be seeking out better-looking and better-paying tenants. They will just wait for the contracts of the call centers to expire. The space can be offered to other multinationals and everybody else. But there are still a lot of property owners in the periphery of the business districts who would love to get the call centers, so everybody is happy," he said, as he added that the prime office space will "seek out its true rent levels." Mr. Raymundo, however, said with nowhere to go, contact centers will have to contend with the higher rental rates. Average vacancy rates in business districts slid to 5% in the third quarter from 6% in the second quarter, the study showed. "There are no new buildings coming up. They have no choice at this point," he said. Business Processs Association of the Philippines president Dan Reyes agreed. "Even if they increase the price, the space we require is not available. Space is the primary requirement," he said. A 15% increase in the price from the current base "is not going to be significant enough" for contact centers to move out of Manila, he added. With its prevailing prices — and even with the 15% increase in rental rates — business districts in Metro Manila will also attract other kinds of BPOs which are not limited by price constraints or contracts, Mr. Raymundo said. "You have the back offices like multinational companies doing regional work in the Philippines. You have companies whose operations for accounting, human resources, serve the region. These companies can pay high rent. Plus, there are other tenants like medical and legal transcription [companies]. The BPO umbrella encompasses a lot [of segments]. There are so many tenants you can attract," he said. Analysts added that other "traditional clients" are expected to look for space in the business districts, since the economy is starting to pick up. "Eventually, the sectors that are doing well will have to expand their operations and companies in these sectors will need space," Mr. Raymundo said.