The growth of business process outsourcing in the Philippines and the expectation of rent increases in Singapore are the main drivers for the gains in the Manila office rental market according to CBRE's latest regional office market report for Asia-Pacific (APAC).
The report showed that Manila's Office Rental Index increased to 6.5 percent quarter-on-quarter. Manila and Singapore (up 3.3 percent quarter-on-quarter) remained the top performers in the region due to strong demand for office space in the central business districts.
CBRE Director of Research Jonathan Hsu said that in the third quarter of 2014, Singapore and Manila saw continued robust growth as a result of limited prime space in central business districts, in particular driven by the success of offshore outsourcing in the Philippines and expectation of rent hikes in Singapore.
The index by the real estate services advisory firm also showed positive rental growth in the third quarter for Shanghai, Melbourne and Sydney, suggesting steady market improvement. Meanwhile, cities like Mumbai and Seoul saw slow office space demand and decreased rentals in Q3. Beijing rental rates dropped for the first time since 2010-2011, but market fundamentals remained robust as property owners continue to determine the price of rentals.
The overall APAC Office Rental Index for Q3 rose to 0.93 percent quarter-on-quarter, somewhat faster than Q2's 0.8 percent growth. Annual growth was the fastest since Q1 of 2012, with a 2.9 percent year-on-year growth led by Manila and Singapore.
Vacant office spaces across APAC dropped to 27 bps or 8.4 percent, the lowest point since the second quarter of 2008. Even in areas where there is oversupply of office space, tenants are finding it hard to secure prime spaces that meet their needs because of limited supply.
CBRE forecasts that office leasing will remain stable as 2014 draws to a close and continue on to 2015. The firm expects the APAC Office Rental Index to increase to 4 percent this year, with strong growth for Singapore and Japan.