The country’s office market is seeing signs of a favorable yearend driven by the rising live demand for office space particularly from the information technology- business process management (IT-BPM) sector.
Data from Leechiu Property Consultants (LPC) shows that a significant increase in live demand by 27 percent has been observed from 457,000 square meters (sqm) in the previous quarter to 581,000 sqm.
“It doesn’t necessarily mean that all these companies will transact in the next few months, but it gives us a bit more lift that there’s an opportunity for the market in q4 to finish on a good note,” LPC Director for Commercial Leasing Mikko Barranda said.
The IT-BPM sector leads the live demand, accounting for a 55 percent share at 319,000 sqm.
The remaining 45 percent or 262,000 sqm was driven by government, financial services as well as real estate/ construction firms.
BGC and Makati lead as the most preferred locations for tenants in Metro Manila based on the live demand.
Demand declines in three quarters
Data from LPC showed that office space demand in the three quarters of 2024 registered at 900,000 sqm, 16 percent lower than the 1.07 million sqm in the three quarters of 2023.
It noted that 51 percent of the demand or 454,000 sqm came from the traditional sector, while the IT-BPM sector registered a 41 percent share of the demand at 371,000 sqm.
In addition, the Philippine Offshore Gaming Operators (POGO) sector contributed an 8 percent share to the demand with 75,000 sqm.
The property consultancy highlighted that demand has been driven by expansion efforts of companies, especially in the IT-BPM sector.
LPC also noted that new entrants accounted for 12 percent of the demand from the IT-BPM sector, which highlights that the Philippines is an increasingly attractive location for new businesses.
Leasing activity contractions rise in nine months
LPC also reported a 21 percent increase in leasing contractions in the nine months of the year to 378,000 sqm worth of contractions compared to 311,000 sqm contractions in the same period last year.
Barranda, however, explained that the reason for the contractions this year tells a different story from last year.
He explained that in the first three quarters of 2023, the bulk of the leasing contractions, or about 40 percent were caused by contract cancellations.
“[They] signed a contract, signed the term sheet, and then at the very last minute, said, you know, sorry, we won’t take the space anymore for whatever reason it may be,” Barranda said.
“However, in today’s analysis of contractions, we noticed that the majority, about 62 percent that have given up space was predominantly because, you know, we want to relocate it to another building. It’s not that we’re not operating anymore, we just want better buildings or a building that can accommodate our requirements. So it’s important to understand not just look at contractions, its purest form, but understand it from the behavior of things,” He added.
Despite the chunk of contractions, overall net take-up of office space managed to increase by five percent in the three quarters of the year to 522,000 sqm from 498,000 sqm in the same period a year ago.
Vacancy levels remain flat
Office vacancy levels currently remain flat a 17 percent but show promise due to 56 percent of the anticipated pipeline buildings will be moved from this year to 2025, according to LPC.
“So we are still at 17 percent and we’ve always been at 17-18 percent. But as we’ve mentioned in previous briefings, it’s not a demand problem. It is really just there’s so much supply that new buildings, contractions, everything clustered together and have really made it difficult for us to bring vacancy levels down,” Barranda said.
“However, we do note that next year, as mentioned earlier, supply will drop significantly. And we don’t see demand to drop, which means that it is expected that vacancy levels will start to go down starting 2025,” he added.
LPC data showed that 66,000 sqm of newly completed buildings were added to the market in the third quarter.
It added that major areas like Makati and BGC experienced a slight vacancy rate increase of 13 percent during the period.
In the fourth quarter of the year, a total of 345,000 sqm of new office supply is expected to be completed.
