New Office Space in Ayala Avenue – JAKA Tower becomes Alveo Financial Tower
49-storey Premium, LEED Certified Office Tower to Rise in Ayala Avenue
Ayala Land, thru subsidiary Alveo Land, will redevelop the former JAKA Tower into a 49-storey Premium, LEED Certified Office Tower.
Contrary to initial information, this Ayala Avenue office project will actually be developed into a Premium office building and not into a Grade A structure. Hurray!
What’s the difference between Premium and Grade A? First off, the amenities are markedly different. The finishes and materials used are of a higher quality and the location is normally in a major, normally a landmark, thoroughfare. Which is why when we first heard that the development was going to be Grade A something felt amiss. So it is fantastic to know that Ayala decided to go premium for the Alveo Financial Tower.
For those seeking premium benchmarks, the Zuellig building in Paseo de Roxas, is an excellent example. RFID cards for tenants and visitors, for example, help boost security, controlling which specific floors one can access. Features like double-glazed windows dramatically cut heat transmission into the building.
Next Door to City Gate
The property sits next to Ayala’s ongoing City Gate redevelopment which will see the area next to the Makati Medical Center, the former People Support/AEGIS office – now Teleperformance office, the current Convergys office, transformed into a mixed-use hub of pedestrian-friendly community spaces and corporate offices. At least 3 Business Process Outsourcing (BPO) towers, a corporate tower and hotel are set to rise in the area. The new office tower from Alveo Land complements the whole redevelopment and sits prominently along the country’s premier financial avenue.
How Much is an Office Space?
Average price per sqm is P230K (P212K – P254K).
How Much is the Yield for Office Space in Makati?
As we previously reported, Premium office spaces in Makati command a monthly lease rate of P1,200 per sqm while Grade A office buildings pull in P900 to P1,000 per sqm. This is based on 2015 lease rates.
For a more specific comparison of premium office lease rates, Ayala Tower One currently leases at P1,200/sqm, the RCBC Plaza at P1,300/sqm, the Enterprise at P1,400/sqm and Zuellig (a building we really love) at P1,500/sqm.
Given the prime location of this Premium office development along Ayala Avenue plus proximity to the retails options in the City Gate development, we estimate the lease rate for the property will receive a premium over other comparable developments.
Completion of the building will probably take 5 years. Current rental growth rates in the Makati CBD are at 6.5% to 7.6% based on Collier’s 1Q 2015 Report. So assuming a very conservative annual lease growth rate of 5%, lease rates by 2020 for Premium office buildings in Makati can reach P1,531 per sqm (using Ayala Tower One as the basis) or P1,914 per sqm (using Zuellig).
So assuming an office space of 100 sqm at P220K/sqm, the acquisition price will be around P22M. (Note: We haven’t factored parking yet.) The monthly lease, projected at the lower estimate of P1,531/sqm by 2020, will be P153K or an annual lease of P1.837M. Assuming a vacancy of 10% (which is unlikely since office leases are for longer terms compared to residential leases – but let’s play conservative), the annual lease income less allocation for vacancies is P1.653M. Which still returns 7.52%. Factor in capital appreciation, which in Makati is currently at 7.5% to 8.6% and total return can reach a minimum of 14% annually.
Things to Consider:
The Makati Central Business District (CB) is still the financial heart of the Philippines.
Ayala Avenue is still Ayala Avenue. It is the main artery of the Makati CBD.
Office space supply in the Makati CBD will remain tight given the lack of new inventory coming in. No new office space inventory will come in from 2015 to 2017.
Contact us if you want to be part of this rare office development in Ayala Avenue.