Cebu's rental growth is expected to see a ‘downward pressure’ as the vacancy rate is seen to go up this year.

Real estate consulting firm KMC MAG Group said the additional office space epicenter to enter the market this year could prompt vacancies to increase.

"In 2017, around 102,800 square meters of additional office space is estimated to enter the market and could prompt vacancies to increase again," KMC noted in its latest Cebu office market report released this month.

"Downward pressure on rental growth is expected especially on buildings in the Cebu Fringe where the vacancy rate is forecasted to remain above 20 percent in the succeeding quarters," said KMC, a local affiliate of London's property consultant Savills.

KMC refers Cebu Fringe to stead outside Cebu's main business districts such as IT Park and Cebu Business Park.

The property consultant said the Cebu IT Park will be the market's bright spot with vacancies to remain low despite the addition of Mabuhay Tower in the current quarter this year.

"Rental growth slowed to 3.7 percent YoY in 4Q/2016 and ended the year with an average of P536.3 per square meters/month. Vacancies in Cebu Business Park and Cebu Fringe weighed down rents after growth decelerated by 12 basis points," it said.

On the other hand, vacancies improved to 8.9 percent by the end of last year from 12.5 percent in 2015.

"Take-up outpaced new supply with net absorption at 46,100 square meters in 2016. However, a number of building completions were pushed back to first quarter of  2017, limiting new office supply to 14,300 square meters in 4Q/2016," KMC said.

In total, gross leasable area added last year to Cebu's office market was just 23,200 square meters compare to 145,000 square meters in 2015.

Cebu is one of the Philippines' growing central business districts (CBDs) and is host to various BPO companies with its low rental rates, consistently growing economy and large pool of talent.

Cebu City now ranks 7th in the 2016 Tholons' Top 100 Outsourcing Destinations report, a point higher from Top 8 in 2015.

Cebu's real estate sector is benefiting from the investors' positive sentiment, as local players implement their massive capital expenditure plans to cover new launches and ongoing developments in the city.

The Cebu office market follows the national trend where the BPO industry heavily drives the market.

At present, there are more than 120,000 employees in the Cebu BPO industry or approximately 10 percent of the total BPO employees in the country.

"The Philippine BPO industry grew by an annual average of 20 percent in the past decade. In the next five years, industry experts are forecasting a growth range between 12 percent to 18 percent. World-wise, the projected BPO growth for the coming years is a steady six percent," property consultant Pinnacle had also said.

By the end of 2016, close to 900,000 square meters of Grade A office spaces were expected to comprise the office market in Metro Cebu. This is approximately 50 percent growth in the past four years, or an average annual growth of 12 percent.

"Four years before that, from 2009-2013, the average growth is 15 percent. While the growth is slightly slower, it reflects the maturing market and the Philippine office market in general," Pinnacle said. 

Source: http://www.philstar.com:8080/cebu-lifestyle/2017/04/25/1693585/downward-pressure-rent-looms-vacancy-rate-rises