American cities need more homes

Restrictions are being lifted in New York City and elsewhere in the US to allow offices to be converted into apartments

On the edge of Manhattan’s financial district, a 1960s brutalist tower designed with narrow slits of glass to look like a computer punch card has been given a fitting facelift. Formerly occupied by back-office staff at JPMorgan Chase, the renovated building at 25 Water Street is America’s largest office-to residential conversion to date.

Apartments advertised for rent include studios starting from about $3,600 a month. And in a nod to the hybrid working era, for about $7,700 you can rent a studio with two home offices.

The 1,300-apartment building is among dozens of office conversions that New York City council hopes will help address the housing shortage.

In December the council voted in favor of the Yes for Housing Opportunity proposal, which would add 80,000 housing units beyond otherwise anticipated supply over the next 15 years. The policy includes lifting a restriction on converting offices built after 1961 into housing and moving the cut-off date to 1990 instead. Lawmakers in states across America are exploring quick fixes to boost the supply of housing.

Last year Arizona and Hawaii passed bills permitting vacant offices and other underused commercial space to be converted into homes. California, Hawaii, Massachusetts, Arizona and Rhode Island also passed laws allowing spaces such as basements, garages, attics and backyards to be turned into so called granny flats, or accessory dwelling units, to help increase the provision of affordable homes. Mark Zandi, chief economist at Moody’s Analytics, estimates America has a shortage of 2.8 million affordable homes.

Homelessness across the US rose by more than 18 per cent last year because of high housing costs, natural disasters and a rise in migration to large cities.

A survey in January last year for the US Department of Housing and Urban Development found that 770,000 people were in shelters, temporary housing or had no shelter, the highest number since the annual survey began in 2007.

Academics trace the country’s housing shortage back to the implementation of single-family zoning laws in the 1910s, which restricted certain areas to single family houses and prohibited the construction of apartment buildings and other properties such as factories.

The first such district was established in Berkeley, California, in 1916 to protect the neighborhood from infiltration by the working classes and ethnic minorities.

Jerome Powell, chairman of the US Federal Reserve, warned Congress last week that the central bank could not solve the affordable housing crisis simply by lowering interest rates.

President Trump has signed a presidential memorandum “to deliver emergency price relief for American families”. He ordered federal agencies to come up with proposals to drastically lower the cost of housing and expand supply.

Officials have been told to find red tape to cut that could lower construction costs and so make homes more affordable, and to review land-use policies to promote developments, such as higher density properties.

On this point, Trump has some shared beliefs with liberal politicians. After the devastating wildfires in Los Angeles last month, Gavin Newsom, California’s governor, signed an executive order suspending environmental reviews and ordering state agencies to identify regulations holding back construction.

Housebuilders have welcomed the move towards deregulation. However, they said the Trump administration’s decision to impose 25 per cent tariffs on all steel and aluminium products imported into the US would deter new development and frustrate efforts to rebuild after natural disasters. “Ultimately, consumers will pay for these tariffs in the form of higher home prices,” the National Association of Home Builders said.

Until regulatory reforms are implemented and building materials costs stabilize, more American city workers will be forced to consider creative housing solutions.

Source: The Times

Manila still 3rd cheapest for prime office rent in Asia-Pacific

Manila remained the third most affordable city for prime office rents in the Asia-Pacific region in the third quarter, according to real estate consultancy Knight Frank.

On an annual basis, Manila’s occupancy cost fell by 1.7%, slightly below the average 2.5% decline in the region, a Knight Frank Asia report released on Oct. 22 showed.

The average prime office cost in Manila was $29.64 per square foot (sq.ft.) in the July-to-September period.

“Prime rents in the region fell just 0.1% on a quarter-on-quarter basis, signaling that rents could be bottoming out, supported by growth in Indian markets,” Knight Frank said.

Kuala Lumpur had the lowest average prime office rent in the region at $20.57 per sq.ft., followed by Jakarta with ($26.75), Phnom Penh ($34.13), Guangzhou ($35.60), and Bengaluru ($36.17).

The most expensive rent for prime office space was in Hong Kong SAR ($155.52), followed by Singapore ($125.66), and Sydney ($99.75).

Knight Frank expects Manila to see a decline in rents in the next 12 months, along with Bangkok, Beijing, Guangzhou, Hong Kong, Shenzhen, and Shanghai.

Cities that will see higher rents in the next 12 months include Brisbane, Perth, Ho Chi Minh City, Singapore, Taipei, Seoul and Sydney.

The average prime office vacancy rate in the Asia-Pacific region slipped by 0.2% quarter on quarter to 14.8% in the third quarter, ending consecutive quarterly increases since the second quarter of 2022.

Manila had the 11th highest prime office vacancy rate in the region at 14%. Kuala Lumpur had the highest at 27%, followed by Shenzhen (25.1%), Jakarta (24.9%), Bangkok (24%) and Shanghai (21.1%).

Knight Frank said companies across the region are keeping a close eye on costs amid slower economic growth and geopolitical risks. It noted that leasing sentiment will likely take a hit as firms curb spending.

“Global economic uncertainties have led to more cautious capital expenditure strategies among occupiers, favoring renewals and consolidating office footprints,” Tim Armstrong, Global Head of Occupier Strategy and Solutions said.

Companies that relocate their offices usually opt for smaller spaces, “aligning with cost mitigation needs and the growing acceptance of hybrid work models,” he added.

“While the business sentiment may improve as the Fed eases monetary policy, demand will continue to be tempered by prudent spending and workplace strategies focused on maximizing space utilization,” Mr. Armstrong said.

Knight Frank said the Asia-Pacific prime office sector will still be “tenant favorable” this year. With the delivery of around 12 million square meters (sq.m.) this year, the pipeline supply next year will likely drop by about one-fifth.

“However, as the development peak in the region subsides, any significant uptick in leasing activity could rapidly tighten the availability of prime spaces. This scenario may accelerate the flight-to-quality trend as tenants seek to upgrade their portfolios in a potentially more competitive market,” Mr. Armstrong said.

Source: Business World

Metro Manila office rental prices decline despite improved vacancy rate

Vacancy rate in Metro Manila’s office market improved in the second quarter of 2024, yet rental prices for office spaces have continued to decline since 2023, according to real estate services and investment firm CBRE Philippines.

“This may look good on the upper hand, but zooming into the prices of each sub-district, we have been noting a trend of declines or reductions in rates as well,” CBRE Philippines Research Head Samantha Laureola said during a briefing last week. 

Metro Manila’s fair market rents (FMR), which represent the typical rental prices for office spaces, have decreased by 2% to 19% across various sub-districts from the first quarter of 2023 to the present. 

The Bay Area’s FMR fell 19% from the first quarter of 2023, followed by a 13% decrease in Makati A&B premium office buildings. Alabang also went down 10%, North Bonifacio declined 3%, and Makati Prime went down 2%.

Meanwhile, Quezon City rose 9% and McKinley inched up by 6%. Ortigas also increased by 2%, and Bonifacio Global City (BGC) rose by 0.4%.

“So lower rates, potentially more attractive lease structures for clients, higher demand, and lower vacancy overall,” she added.

The vacancy rate went down to 17.8% in the second quarter of 2024 from 19.7% in the same period last year.

CBRE also revised its initial forecasted vacancy rate from 18.8% to 22.6% by the end of the year due to the Philippine Offshore Gaming Operators (POGO) ban. 

Makati Prime had the highest FMR in the second quarter of this year at P1,289.01, followed by BGC at P1,170.88, while North Bonifacio and the Bay Area logged P1,076.88 and P702.64, respectively. 

Makati A&B recorded an FMR of P789.40, McKinley at P834.06, Ortigas at P764.39, Alabang at P671.40, and Quezon City at P735.35.

“Lower FMR for most of the major Metro Manila markets as developers continue to provide aggressive rates to spur transactions,” the firm said.

On a quarter-on-quarter basis, CBRE Philippines Director of Advisory and Transactions Services Garri Amiel Guarnes said the Bay Area had the highest reduction of 7.3% in FMR in the second quarter of 2024.

“That’s a lot to do with the transactions, government take-ups within the Bay Area, and the high number of square meters being taken by the government offices,” he said.

The office market logged 257,200 square meters (sq.m.) of office leases for the second quarter, driven by government take-ups that accounted for a 26% share. 

Some of the biggest government leases during the first half went to Filinvest, including the National Bureau of Investigation in Cyberzone Bay City Towers and the Department of Trade and Industry in Filinvest Buendia. 

Despite CBRE’s expectation that the vacancy rate by year-end will hit 43% due to the POGO ban, the Bay Area was the top district for the second quarter of 2024 with 83,400 sq.m. of leases in the country.

SERVICED OFFICE VACANCY RATE HIT 20.6%

Meanwhile, the vacancy rate of Metro Manila’s flexible market — comprising coworking spaces, serviced offices, and short-term leases — surged 20.6% to 7,000 vacant seats in the second quarter due to the opening of new sites across the area, CBRE Philippines said.

This figure was 6.75% lower than the 14% vacancy rate in the same period last year, and lower than the 17% recorded last quarter.

CBRE Senior Research Analyst Angela Joyce Sumalinog said the increase in vacancy was driven by the opening of new sites in Metro Manila, where Fort Bonifacio recorded the lowest vacancy rate at 11%.

North Bonifacio’s vacancy rate fell to 10% in the second quarter, while BGC also decreased to 10%. McKinley’s vacancy rate rose to 18%.

The vacancy rate in Makati increased to 19%, Ortigas doubled to 24%, and Quezon City reached 22%. Meanwhile, the Bay Area and Alabang saw increases to 25% and 52%, respectively.

“Another factor that we’re seeing that can affect the flex market would be comparing serviced offices versus vacated spaces with quality fit-outs. The former would often have a premium on rates of 50% to 80% over three to five years,” Ms. Sumalinog said.

CBRE reported that Metro Manila rates range from P5,000 to P36,000 per seat per month.

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Source: Business World