With office vacancy still high, landlords offer generous deals

Office landlords in Metro Manila’s business districts are looking at offering generous concessions to lure in and retain  tenants as vacancy rates continue to rise, a property services firm said.

In its latest Metro Manila office briefing, KMC Savills Inc. reported that elevated vacancy rates in the Metro Manila office market have also affected rental rates.

KMC Savills said average rents ended the second quarter 0.4 percent lower than the first quarter of the year and 1.6 percent lower than average rents in the same period last year.

“Landlords may look to offer generous concessions to help them attract and/or retain tenants. Lessees, however, may look to go bargain hunting given the surplus of new stock in their chosen submarkets,”KMC Savills said.

Overall vacancy in Metro Manila hit another new record high at 13.0 percent of total grade A office stock in the first half of the year, according to KMC Savills.

It added that this has been compounded by building completions of previously delayed projects – with 150,000 square meters (sqm) of fresh Grade A office space completed during the quarter.

“Amid leasing activity starting to pick up, non-renewals and pre-termination continue to dampen demand,” KMC Savills said.

“With the influx of new office spaces projected until 2024, vacancies may increase even further, possibly breaching the 1,000,000 sq m threshold of office space in the market,”it added.

The Alabang market posted the lowest average net rental rate among Metro Manila submarkets in the second quarter at P685.2 per sqm per month, one percent lower than the previous quarter.

“As Alabang continues to seek new tenants for its excess in stock, we may see further

reductions in effective rents,”the report said.

Alabang is followed by the Ortigas Center with an average rate of P691.1 per sqm per month, 0.4 percent lower than the previous quarter.

As new supply continues to flow into the submarket, available options will remain abundant. Landlords have been reluctant to lower asking rates but have opted to offer other incentives and concessions,”KMC Savills said.

Average office rents in Quezon City also declined by 0.1 percent to P234.0 per sqm per month, while the Bay Area posted a 0.3 percent decline to P867 per sqm per month.

KMC Savills reported that average rents in Bonifacio Global City registered at P1,016.2 per sqm per month, 0.5 percent lower than the previous quarter, and a 1.9 percent year-on-year drop.

“Landlord concessions may continue to be more aggressive, especially from landlords with older buildings, as they are competing with new supply and subleasing spaces already built out,”KMC Savills said.

The Makati CBD commanded the highest average rents among Metro Manila submarkets,however, rents finished the quarter 0.2 percent lower at P1,134.3 per sqm per month.

“With premium grade offices experiencing major vacancies, a decrease in rent has been experienced to make current stock more appealing. Given the current surplus in the market, we may expect more flexible rent payment terms,”KMC Savills said.