90K sq.m new office supply
CEBU exhibited the most active real estate market among provincial regions in 2023, according to a global real estate services and investment firm.
Additionally, over 90,000 square meters of new office supply will also enter the market in 2024.
During its year-end 2023 market overview on Wednesday, Feb. 21, 2024, at the Fili Hotel in Nustar, CBRE revealed that there are 238,700 square meters (sq.m) of available office spaces in Cebu. The majority of this space is situated in Cebu I.T. Park, comprising 103,100 sq.m, followed by Cebu Business Park with 58,500 sq.m, fringe areas with 52,800 sq.m and Mactan with 24,400 sq.m.
Of the total available space, 54 percent remains unleased, 40 percent is currently vacated and six percent is newly developed. Eighty-nine percent of the office spaces are accredited by the Philippine Economic Zone Authority and more than half were constructed by local developers.
In 2023, Cebu experienced a vacancy rate of 19.4 percent or 95,470 sq.m of vacant office spaces. CBRE noted that this marks the lowest vacancy level in Cebu over the past 24 months, signaling a positive trend.
Jie Espinosa, CBRE’s country head on advisory and transaction services, said the drop in vacancy rate from 27 percent made a lot of occupiers, especially those looking at provincial locations take notice and feel that Cebu has an environment that is conducive for future growth.
CBRE saw a decline in demand for spaces during the first two quarters of 2023 but witnessed a recovery in the third and fourth quarters. This resurgence was fueled by the expansion of Information Technology and Business Process Management companies within Cebu IT Park.
Additionally, small and local tenants in Mactan also played a significant role, accounting for 38 percent of the total transactions for the quarter, as they make flight-to-quality decisions.
“Flight to quality” in real estate refers to a trend where investors or tenants prioritize higher-quality properties, often characterized by better locations, amenities, construction and management, during times of market uncertainty or economic downturns.
“The last two quarters of the year for 2023 saw a resurgence in terms of demand and it’s really because of the function of the availability of quality office spaces in Cebu IT Park and Cebu Business Park,” said Espinosa.
New supply
For 2024, CBRE said some 90,200 square meters of office space will be made available this year with the completion of four delayed office projects. These buildings include the Il Corso I.T. Center, Grand Tower, Mahi Center and FLI Cebu Cyberzone 3 and 4.
Espinosa expressed confidence that these newly available spaces will be quickly occupied, citing the continued expansion of outsourcing firms, local companies’ preference for high-quality spaces and Cebu’s strong reputation as the premier business destination outside of Metro Manila.
The client-driven approach adopted by developers is also seen to benefit the office market as it ensures that the design, features and amenities of office spaces align closely with the needs and preferences of tenants or clients.
Espinosa believes that in 12 to 18 months, there could be a significant reduction of available spaces in the market.
Real property tax
Meanwhile, when asked about the impact of proposed adjustments on real property tax (RPT), Espinosa said RPT revisions will have impact on costs but he noted that these tax adjustments may be necessary to fund future projects in Cebu.
“I don’t begrudge the local government units for doing that because ultimately it trickles down to infrastructure that benefits employees and the business process management companies that come into the provinces as well,” said Espinosa.
Cebu City Councilor Noel Wenceslao has proposed a gradual rollout of the upcoming adjustments to RPT.
According to the news portal of the Cebu City Government, Wenceslao, who chairs the budget and finance committee in the City Council, said he would want to consider the concerns of the local business community.
“Hatagan nato og gamay’ng pagpahiluna, but we have to increase. But ato lang i-staggered ang implementation,” he said.
According to a Sunstar report, the councilor said he understands the plight of the business owners, saying that the City Government really needs to stagger the implementation of the increase in fair market values (FMV) of property in the city because a one-time increase would really be a burden to real property owners.
The FMV is the basis for the computation of the real property tax due.
Last August, SunStar Cebu reported that the proposed adjustment would see the FMV of properties in some prime locations in Cebu City soar by 200 to 3,200 percent.