Glimmers of optimism appear for office landlords

Work-from-home may be the current normal for a lot of people these days, but this may not be the most productive setup for everyone.

Some people are simply more productive in an office setup.

Results of a poll by Colliers International Philippines, which were presented during its quarterly property market briefing, showed that 63 percent of respondents are more productive in an office setup, while only 37 percent are productive in a work-from-home arrangement.

“Despite the popularity of work-from-home arrangement, the majority of respondents still believe that they are more productive in a traditional office setup,” Colliers said.

“This should buoy the optimism of landlords who have been suffering from increasing vacancies since the start of the pandemic,” it added.

Office vacancy in Metro Manila rose to 9.1 percent in 2020, more than double the 4.3 percent vacancy in 2019.

In addition, flexible workspaces’ vacancy ballooned to 41 percent in 2020 from 28 percent in 2019.

For this year, office vacancy is forecast to hit 12.5 percent, the highest since the 13.8 percent recorded in 2003.

Colliers said office space take-up is projected at 354,500 square meters while 886,200 sqm of new office space is expected to come online.

Moreover, rents in the Metro Manila office market are expected to further drop this year before making a recovery in 2022.

Colliers said subdued leasing this year from all sectors, such traditional companies, outsourcing and the Philippine Offshore Gaming Operators (POGO), is likely to result in a correction of lease rates.

But this will not be forever, as results of the poll showed. 

People will eventually go back to work and employers will strive for the higher productivity from an office setup. 

Tycoons themselves prefer an office setup. 

Corporate titan Manuel V. Pangilinan has said that an office setup works better for him especially for meetings as virtual conferences tend to be limited. 

Property and automotive tycoon Alfred V. Ty likewise said that there are matters that are difficult to discuss during virtual meetings. These include budget discussions.

But recovery won’t be easy. 

CEBU

In Cebu, for instance, the office market continues to reel from the impact of the COVID-19 pandemic as vacancy level has reached an all-time high.

In its fourth quarter 2020 Cebu Office Briefing, KMC Savills reported that overall vacancy in Cebu increased during the quarter and finished the year at 18.8 percent.

“All submarkets continued their slide from the previous quarter, with Cebu Business Park (CBP) and Cebu Fringe recording 8,300 sqm and 2,200 sqm of office space vacated, respectively,” KMC Savills said.

The real estate services firm said Cebu IT Park (CITP) was the biggest loser for the quarter as it registered 89,200 sqm of vacant office space.

“Due to low demand from the opening of Central Bloc Tower 2, vacancy rates in the area grew to 23.6 percent in fourth quarter of 2020,” KMC Savills said.

Similarly, declines were also seen across the board in terms of rent, as landlords coped with the increased competition from recent vacancies and upcoming releases.

CBP rents took the hardest hit, reversing 2019 gains with a 3.3 percent drop year-on-year.

This brought average rent in Cebu posted a 1.3 percent quarterly decrease at P577.4 per sqm per month. This is also a 2.3 percent lower than the previous year.

“We forecast rental rates to continue their downward trend as the market deals with the new supply in the coming months,” KMC Savills said.

For this year, around 149,800 sqm of fresh Grade A office supply is expected to come online.

KMC Savills said demand is foreseen to remain muted due to weak leasing activity.

It added that as of the end of 2020, more than 95 percent of this scheduled new inventory is still available in the market.

“This surplus may continue in the long term as Cebu deals with the effects of the pandemic,” the real estate services firm said.

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