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MarketBeat Manila, Philippines Office Snapshot - Q4 2011

Apr 06, 2012
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MARKETBEAT
OFFICE SNAPSHOT
MANILA, PHILIPPINES
A Cushman & Wakefield Research Publication

Q4 2011

ECONOMY
The Philippines domestic economy grew by 3.6% in the first three quarters of 2011, lower than the robust 8.2% Gross Domestic Product (GDP) growth in the same period last year. The country's growth performance was largely affected by external factors such as the global economic slowdown brought about by the continuing weakness in the U.S. economy, uncertainties and fiscal problems in the Eurozone and the disaster in Japan which is a major trading partner of the Philippines. On the domestic front, growth was weakened by delays in public spending, weak exports due to low demand, slow implementation of Public-PrivatePartnership (PPP) projects and the typhoons that caused losses and damages to the agriculture sector. On the bright side, consumer prices remained stable while the unemployment rate was kept within the target for 2011.

The factors that were cited for the optimistic outlook were the expected increase in consumer demands during the holiday and harvest seasons, sound macroeconomic fundamentals and business expansions from investment inflows. The Business and Knowledge Process Outsourcing (BPO/KPO) industry will continue to drive the growth of the office market in the Philippines. Many residential condominiums are also expected to have provision not only for traditional office space but also for BPO/KPO offices due to the active expansion of operations by players in the industry. Further increase in lease rates are still expected next year.

STATS ON THE GO
4Q11 Overall Vacancy Direct Asking Rents 6.90% $13.73 Q-O-Q CHANGE 3.32% 0 Y-O-Y CHANGE 12 MONTH OUTLOOK 9.13% 8.28% 60.85%

OFFICE OVERVIEW
The conditions of the Philippine Office Market for the last quarter of 2011 have not changed from the previous quarter. Business Process Outsourcing (BPO) continues to drive the demand for office space. Vacancy rates continue to decline, especially in Fort Bonifacio. While developers continue to shore up supply of office space, completions remain at a slow pace. More office space expected to be delivered by this quarter were delayed until at least the first quarter of 2012. BPO companies also continue to spread out into the next wave cities in other parts of the country. Lease rates generally remained stable for the last quarter of the year. There has not been much movement seen in the market. Fort Bonifacio continues its bullish progress into a business center at par even with Makati's CBD. Most of the upcoming supply is in Fort Bonifacio. The northern portion of the former military property, previously untouched by major developers, are now being eyed by these developers as lots in the Global City and McKinley Hill are rapidly being developed. Vacant and nonperforming properties in Alabang are being targeted by other developers to create another center to rival Filinvest Corporate City. The creation of such a center is expected to further distribute the presence of major tenants such as BPOs to the south.

Absorption (sf)

236,375.26 -151,438.25

ECONOMIC INDICATORS
PHILIPPINES GDP Growth CPI Growth Unemployment 2009 1.1% 4.1% 7.5% 2010 7.6% 3.8% 7.3% 2011F 4.5-5.5% 3.0-5.0% 7.4%

SOURCE: Philippine National Statistical Coordination Board; Philippine National Economic Development Authority; Philippine National Statistics Office

GRADE A OVERALL RENTAL VS. VACANCY RATES
650 600 550 500 450 400 350 300 250 200 150 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11
Net Effective Rent Vacancy

25%
20%

PHP/sq.m/mth

15%
10%

5%
0%

OUTLOOK
The latest Business Expectations Survey of the Bangko Sentral ng Pilipinas (BSP) reported an improved business outlook in the near term.

MANILA OFFICE MARKET
SUBMARKET INVENTORY SQM OVERALL VACANCY RATE UNDER CONSTRUCTION SQM 102,200 23,400 143,400 0 0 39,300 308,300 YTD CONSTRUCTION COMPLETIONS 0 0 0 0 0 0 0 OVERALL DIRECT NET ABSORPTION SQM 7,114 5,844 7,558 1,445 0 0 21,961 GRADE A AVERAGE NET (PHP/SQM/MONTH) 3Q11 850 650 725 500 380 475 597 4Q11 850 650 725 500 380 475 597 US$ SF/YR 4Q11* $21.80 $16.67 $18.59 $12.82 $9.75 $12.18 $15.31 EURO SF/YR 4Q11* 16.68 12.76 14.23 9.81 7.46 9.32 11.72

Makati CBD Ortigas Center Fort Bonifacio Filinvest Corporate Center Metro Laguna Metro Cebu TOTALS**

2,718,097 1,168,700 1,679,546 722,400 61,565 982,208 7,332,516

5.63% 2.0% 5.25% 1.0% 17.0% 10.5% 6.90%

*RENTAL RATES REFLECT ASKING $PSF/YEAR 1 USD = 43.50PHP, 1 EURO = 56.725PHP

MARKET STATISTICS
SIGNIFICANT 4Q11 LEASE TRANSACTIONS BUILDING Bonifacio One Technology Tower Net Lima iSquare Vector One SIGNIFICANT 4Q11 SALE TRANSACTIONS BUILDING N/A SIGNIFICANT 4Q11 CONSTRUCTION COMPLETIONS BUILDING N/A SIGNIFICANT4Q11 PROJECTS UNDER CONSTRUCTION BUILDING iSquare Filinvest EDSA Zuellig Building Ayala BPO2 Ayala BPO1 8 Campus Place Net Lima Eco Tower MARKET Ortigas Ortigas Makati CBD Makati CBD Makati CBD Fort Bonifacio Fort Bonifacio Fort Bonifacio TENANT NA NA NA NA NA NA NA NA SQUARE FEET 177,600 74,200 674,800 218,500 206,600 473,600 572,600 497,200 COMPLETION DATE 1Q2012 2Q2012 1Q2012 1Q2012 1Q2012 1Q2012 1Q2012 4Q2012 MARKET TENANT SQUARE FEET COMPLETION DATE MARKET BUYER PURCHASE PRICE (US$) SQUARE FEET MARKET Fort Bonifacio Fort Bonifacio Ortigas Center Filinvest Corporate Center TENANT Teradata FMC Chemicals Dupont Convergys BUILDING CLASS A A A A SQUARE FEET 16,727 15,000 26,767 86,111

* RENEWAL - NOT INCLUDED IN LEASING ACTIVITY STATISTICS

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This report contains information available to the public and has been relied upon by Cushman & Wakefield on the basis that it is accurate and complete. Cushman & Wakefield accepts no responsibility if this should prove not to be the case. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. ę2012 Cushman & Wakefield, Inc. All rights reserved.