Glut in office space may last until 2010

OFFICE space is likely to remain in surplus next year with rents remaining steady as the global credit crisis trims demand and builders boost supply, the multinational real estate services company CB Richard Ellis said Wednesday.

“There’s a huge oversupply,” said Joey Radovan, vice chairman of CB Richard Ellis Philippines.

This surplus was likely to keep rents stable next year and allow occupants to expand their businesses, he said.

New office take-up reached 158,319 square meters in the first nine months compared with 225,000 square meters for all of 2008.

New supply was expected to rise to 700,000 square meters this year from 300,000 in 2008, and more than 500,000 square meters would likely be completed in 2010, the world’s biggest commercial property broker said.

Weaker demand had caused rental rates to fall from between 40 percent and 46 percent to between P650 and P850 a square meter so far this year, levels last seen in 2006, Radovan said.

Despite the drop in rents, major property developers were able to post year-on-year growth in revenues in the first nine months, said Rick Santos, chairman of CB Richard Ellis Philippines.

“Real estate products will continue to sell given market demand, but must be in the right location and responsive to buyers expectations as to price, quality and timely delivery,” he said.

The SM group, with SM Prime Holdings and SM Development Corp., leads the industry with its affiliate Anchor Land Holdings. The group focuses on retail malls, residential condominiums and hotel developments across the country.

SM Development, the SM Group’s middle-income residential condominium development arm, posted a P1.3-billion net income for the first nine months.

Santos said skeptics continued to discourage developers from building residential condominiums, but SM Development had found a niche and captured buyer interest. To sustain this momentum, SM Developent had lined up four new projects for 2010 and scheduled their financing.

Analysts say there is no let-up in retail mall development across the country. New markets with pent-up demand for modern retail facilities are being pursued by the major retail developers such as Ayala Land Inc., SM Prime and Robinsons Land Corp.

And developers such as Ortigas & Co, Greenfield Development Corp., DMCI Homes, Phinma Properties Inc., and Rockwell Land Corp. are venturing into projects tapping the growing demand for affordable residential housing and condominiums.

Santos said these developers had significant landholdings and strong balance sheets, allowing them to launch and complete well-planned real estate projects.

“This trend is expected to continue into 2010 and onwards as the Philippine economy slowly but surely regains its growth momentum,’’ Santos said. –Elaine R. Alanguilan, Manila Standard Today with Bloomberg