Colliers continues to see a testy Metro Manila office market.
We saw massive disruption in 2020 and 2021 due to the pandemic. There was a sudden surge in vacancies and decline in lease rates but the good news is that the market is gradually recovering.
However, challenges remain and landlords need to address these to be a step ahead in the game.
Office developers need to be more strategic as they build more towers and seize demand from outsourcing firms expanding within Metro Manila.
Outside of traditional office buildings, developers should ramp up construction of more sustainable office towers to capture demand from large occupiers that put a premium on sustainability.
Partnering with flexible workspaces should also be an option for landlords especially given the popularity of the ‘work-from-anywhere’ scheme amongst the dynamic and mobile Millennial and Gen Z employees. In our view, maintaining the status quo just won’t cut it. Developers should exhibit flexibility amidst all the uncertainties.
Dealing with vacancies
While vacancies remain elevated, Colliers believes that expanding BPOs are likely to occupy more traditional office spaces.
However, some tenants also continue to vacate office spaces and this is likely to stifle office space absorption moving forward. Despite this, there are abundant opportunities for flexible workspace operators.
We still see a tenant-leaning market and this should provide an opportunity for firms (both BPOs and traditional/corporate firms) to haggle for lower rates. Landlords, on the other hand, should remain proactive in chasing major occupants that are on the lookout for expansive and new office spaces as well as sustainable buildings.
From Alabang to Quezon City, vacancies range between 9.4 percent and 36 percent.
The good news is that some central business districts (CBDs) are starting to see improvement in vacancies.
From 2023 to 2027, Colliers projects the delivery of nearly 500,000 square meters of new office supply. Among the new buildings due to be completed in Metro Manila during the period are Pioneer House BGC, Camaro Square in Quezon City, iMet 4 in Pasay City, DDT Skytower in Quezon City, and Frabelle South Tower in Alabang.
Opportunities in the countryside
Latest Colliers Philippines data show that office deals in the provinces declined in Q1 2023.
Colliers recorded 29,200 sqm of transactions during the quarter, 37 percent lower compared to the 46,300 sqm posted a year ago. Cebu continued to dominate, followed by Pampanga, covering 55 percent and 36 percent of total provincial transactions, respectively.
In 2022, data from the Information Technology and Business Process Association of the Philippines (IBPAP) showed that the country’s IT-BPM industry headcount and revenues reached 1.57 million and $32.5 billion, a 10.3 percent and 8.4 percent growth year-on-year, respectively.
IBPAP noted that the increase in headcount may be attributed to the growth in the banking, financial services, healthcare, technology, retail and telecommunications sectors.
Meanwhile, about 70,000 jobs were generated in Cebu, Davao, Pampanga, Bacolod and Laguna, with provincial full-time employees (FTEs) now reaching 486,000, or 31 percent of the industry’s total headcount.
In 2023, the IBPAP is projecting the country’s IT-BPM industry headcount to reach 1.7 million with revenues estimated to reach $35.9 billion.
Proactively provide concessions
Over the past year, several traditional firms have implemented a mix of non-renewal and pre-termination of their leases. Given this, retention of existing tenants in a landlord’s portfolio and securing of new leases from new clients are important to developers today.
Landlords may achieve this by engaging in early renewal discussions with their existing tenants, providing creative renewal terms and other special concessions that will enable them to retain high occupancy in their office buildings.
In our view, developers that also provide tenant improvement or fit out allowance will be able to attract new occupiers in their portfolio. Landlords should be proactive in providing this concession especially to large IT-BPM firms.
Seizing opportunities amid an unpredictable market
Colliers believes that the office market remains testy at this point, within and outside Metro Manila. While some companies continue to look for options outside of the capital region, some firms are still implementing a wait-and-see strategy and holding off expansion plans.
While vacancies remain elevated, Colliers believes that there are opportunities that both landlords and occupants can maximize. Landlords and tenants should remain aggressive in coordinating with local ICT councils, local government units, and academic institutions to address skills mismatch across the country.
Opportunities outside Metro Manila
At Colliers, we have seen growing interest for key cities outside Metro Manila. Cebu, Pampanga, Iloilo, and Bacolod are among the popular expansion sites outside of the capital region.
But we see rising interest for second and third-tier cities including Dagupan, Naga, Laoag, Dumaguete, Tarlac, and Bulacan.
Colliers believes that for these areas to eventually emerge as key locations for BPOs, landlords, local government units, and local ICT councils need to work together.
This should result in the emergence of more outsourcing sites outside of Metro Manila.