MANILA OFFICE REPORT 3Q11

ECONOMY The Philippine domestic economy decelerated to 3.4% in the second quarter of 2011 compared to the 8.9% Gross Domestic Product (GDP) growth that was recorded in the same period last year. Growth was driven by the strong performance of the agriculture sector, as well as the modest expansion of the services sector, primarily financial intermediation, real estate, renting and business activities, and other services subsector. The Philippine Peso strengthened against the US Dollar to average P43.29 from January to August this year. Annual Inflation rate averaged 4.3% in the eight months to August, well inside the governments full year target of 3-5%. The results of the July 2011 Labor Force Survey (LFS) showed that Employment rate remained high at 92.9% while the Unemployment rate was estimated at 7.1%. Export earnings in the first six months of the year amounted to $24.757 billion while Imports was recorded at $30.501 billion. The latest Business Expectations Survey of the Bangko Sentral ng Pilipinas (BSP) shows improved business outlook for the third and fourth quarter of 2011. OVERVIEW The Philippine Real Estate Market continues positively in the third quarter of 2011. The healthy outlook and demand from the Business Process Outsourcing (BPO)/Call Center industry remains, driving the growth of office leasing operations. Developers continue shoring up projects to provide this industry, as well as other industries, with new space. However, project completions remain at a slow pace. Only a fraction of new space expected to be finished this quarter was delivered, while the remaining moved their target completions. While there are projects within Metro Manila that will offer fresh space for office lease, areas outside Metro Manila are also being developed to host prospective tenants, mainly BPOs. Development of offices are now being brought to where the human resources is. Most landlords continues to increase their lease rates. The view that 2011 will see the market gaining gradual increase as demand peaks and supply gradually diminish is still upheld given the current situation. Office market is anticipated to be neutral later this year. Investor sentiment remains positive even as a new global economic crisis is feared to occur. Low lease rates may still be enjoyed in areas without new spaces such as Manila City. Vacancy rates continue to decline. Makati CBDs prime rates is still averaged at Php850/sqm/mo, while vacancy rate dropped to 8.30%. The local Real Estate Investment Trust (REIT) continues to have issues regarding regulation and governance. REIT is expected to inject more capital into the market. However, developers, initially enthusiastic of the investment opportunity offered by REIT, are now hesitant in expanding to the REIT market citing strict and unworkable rules. Active campaign for green building projects are also undertaken by different sectors. Most developers are now applying said concept to new projects. OUTLOOK The market is expected to remain positive and become neutral by the last quarter of 2011. The BPO/Call Center industry is expected to continue to drive the growth of office leasing operations until the year ends and even beyond. Further increase in lease rates is expected. Inflationary pressures as a result of the rising oil prices, the European financial crisis, and the US economic issues will likely affect the market in the short-run, but this is expected to be mitigated by the initiatives and reforms implemented by the combined effort of the private sector and the government towards economic growth. A dialogue between the government and the private sector regarding REITs will hopefully settle issues and result in putting the market at par with international competition.
1 MANILA OFFICE REPORT 3Q11

BEAT ON THE STREET

Currently, the (REIT) regulations are too stringent. But then again, Im hopeful common sense will prevail and this will be a tremendous step forward for the Philippines, given the growing population and growing urbanization. Simon Treacy, group chief executive at MGPA, quoted from a BusinessWorld article dated 21 September 2011 ECONOMIC INDICATORS
2009 GDP Growth CPI Growth Unemployment Rate Employment Rate 1.13% 3.4% 7.5% 92.5% 2010 7.3% 3.8% 7.3% 92.7% 2011F 7-8% 3.5-5.5% 7.4% 92.6%

Source: NSCB, NSO, NEDA, CFEI

MARKET FORECAST ABSORPTON: Low absorption rates lingers

as most spaces taken up are replaced by newly constructed spaces and major expansions and new leases are still deliberated upon by both landlords and tenants.

CONSTRUCTION: A slow pace of project

completions persists, delaying commencement of the construction of other projects in the pipeline.

RENTAL RATES: Lease rates continue

going up especially in key centers such as Fort Bonifacio and Ortigas Center.

GRADE A RENTAL VS. VACANCY RATES

1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0
PHP/sq.m./mth

10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%

3Q084Q081Q092Q093Q094Q091Q102Q103Q104Q101Q112Q113Q11

Rent

Vacancy

MANILA OFFICE REPORT 3Q11

MARKET / SUBMARKET STATISTICS

*Php/sqm/mth Exchange Rate: US$ = Php43.8100 EUR = Php59.2750 Source: CFEI

** all grades

MARKET HIGHLIGHTS

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*Market terms & definitions based on BOMA and NAIOP standards. 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. 2010 Cushman & Wakefield, Inc. All rights reserved. Please consider your environmental responsibility before printing this report.

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MANILA OFFICE REPORT 3Q11