The office market in Metro Manila is seeing signs of improvement.
Vacancy rates for grade A offices in the Metro Manila market posted a quarter-on-quarter decline in the third quarter of the year, the first time since the start of the pandemic, according to a real estate services firm.
In its latest market report, Cushman and Wakefield Philippines said overall grade A office vacancy rate in Metro Manila closed at 16.1 percent at the end of the third quarter of the year, a decline of 10 basis points (bps), from the previous quarter.
It added that this is the first time the average vacancy rate declined, after maintaining a positive trajectory since the first quarter of 2020.
“While this figure is still 190 bps higher year-on-year compared to the estimated vacancy rates in Q3 2021, this quarter-on-quarter improvement shows that demand is slowly recovering,” Cushman and Wakefield said.
It added that a positive net absorption of 38,000 square meters (sqm) was recorded in the third quarter, an improvement from the -37,000 sqm in the second quarter of the year. This brought year-to-date net absorption to 32,000 sqm.
“Market activity continues to improve as even the mask-wearing mandate has eased in Q3 2022. While there are still potential rightsizing initiatives from companies who are still working on their workplace strategies, we can expect some considerable take-up from new entrants in the next couple of quarters,” said Cushman and Wakefield director and head of tenant advisory group Tetet Castro.
She added that market fundamentals are slowly improving and will likely continue, entering 2023.
“Many corporate occupiers remain unsure about their future office needs – hence, a mix of real estate strategies are in the offing,” said Cushman and Wakefield director and head of Research, Consulting & Advisory Service Claro Cordero.
“Future occupational strategies have been a mix of less space allocation per worker and an overall increase in occupancy cost due to upgrades into office space serving multiple purposes with the objective of attracting the employees back to the office,” he added.
With the advent of hybrid work practices, Cushman and Wakefield said several companies may consider operating in multi-sites, which may mitigate higher occupancy costs and wages due to elevated inflation rates.
It added that this scenario bodes well for the continued growth and expansion of the Information Technology and Business Process Management (IT-BPM) industry and outsourcing industries, which will likely fuel growth in office space demand in the medium-term.
“While the pending imposition of the Philippine offshore gaming operators (POGOs) ban will (when it happens) drag rents down, the recovery of office space demand from IT-BPM companies (coupled with still expected delays in supply completion) will soften the downfall and eventually reverse the direction (to growth) in the short-term,” Cordero said.
He said POGOs have been exiting the market since early 2020 and have caused rents to go down by as much as four percent, on average, over the last seven quarters.
“While the industry may have occupied more than one million sqm of (primarily non-CBD Grade ‘B/C’ office space at its peak, the real estate footprint of the industry has significantly gone down to less than half by Q3 2022,” Cordero also said.