The Metro Manila office market continues to see increasing vacancies as companies, including outsourcing firms and traditional occupants, continue to rationalize office spaces.
Tenants are implementing hybrid work arrangements, and this is contributing to the rising vacancy across the capital region.
Offshore gaming companies from China have either vacated their offices or downsized, leaving a void in the market. Office lease rates continue to correct but rates in major business hubs such as Makati CBD, Ortigas CBD, and Fort Bonifacio have held firm.
Flexible workspaces remain an option for several occupants, providing impetus for landlords and independent operators to put up facilities in key office markets outside the capital region.
Challenges in the office market persist. We see this clearly in Metro Manila. The good news is that firms continue to occupy spaces outside the capital region, with Pampanga, Cebu, Laguna, Davao, and Cagayan de Oro among the most popular locations for expansion.
We encourage developers to remain cautious of macroeconomic factors that may affect overall business sentiment and, thus, result in dampened demand for office space.
Office market stakeholders should remain agile and check how geopolitical and global economic slowdown may dampen appetite for the traditional office space.
Assess need for hybrid work requirements
Colliers Philippines believes that post-COVID-19, companies are likely to continue implementing flexible work arrangements. While some firms are undertaking return-to-office measures, some, including BPO firms, are allowing their staff to work from home. Many employers are even allowing work-from-anywhere.
In our opinion, firms implementing return to office (RTO) measures should consider reconfiguring their spaces to prioritize employees’ health and safety. Colliers believes that office renovations are pivoting to adapt offices to the hybrid arrangement. This, in turn, should help drive businesses, foster employee engagement, and strengthen company culture. Hence, we encourage tenants and landlords to determine the ideal office configuration as employees gradually return to traditional workspaces.
Take advantage of rental corrections and prevailing market conditions
Office rents in Metro Manila have dropped by 38 perccent since 2020. In our opinion, this should encourage occupiers to employ flight-to-quality measures as well as secure early renewals in business districts such as Makati CBD, Bay Area, Ortigas CBD and Fort Bonifacio where substantial and quality new supply is also available.
Landlords, on the other hand, should be mindful of vacancy dynamics across submarkets and continue to provide concessions such as delayed escalations, rent-free and extended fit-out periods to entice and retain tenants.
Prioritize sustainable building features
In Colliers Philippines’ report titled Forging Smarter and Greener Buildings, we highlighted that property developers are increasingly taking steps to address climate change by “embracing available advanced technologies.”
To further promote sustainability, developers are taking advantage of globally recognized green building certifications to reduce their properties’ environmental impact and to satisfy occupiers’ Environmental, Social and Governance (ESG) standards. Colliers believes that the future of office buildings leans toward developing spaces which are safer, healthier and are less harmful to the environment.
Colliers has also observed that some discerning occupiers prefer or require ESG-certified office space. Landlords should capture this demand. In 9M 2023, about 32 percent of the transactions were in LEED-certified buildings. From 2024 to 2026, an estimated 47 percent of new office towers are considered as sustainable office spaces bearing certifications such as WELL, LEED, EDGE, and BERDE.
Take advantage of fully-fitted spaces and consider flexible workspaces
As of the end of Q3 2023, about 360,900 square meters or 14 percent of the available spaces in Metro Manila are in fully-fitted handover condition. Colliers encourages occupiers to take advantage of the available fully-fitted spaces in the capital region to save on capital expenditures (CAPEX) and fit-out costs.
Over the past 12 months, a number of outsourcing firms expanded and took up office space in Metro Manila with sizes ranging from 200 to 5,000 sqm. Meanwhile, flexible workspaces’ move from a niche to a mainstream real estate option should provide occupiers a viable alternative for their real estate strategies. As of end-Q3 2023, flexible workspace vacancy in Metro Manila improved significantly to 16.9 percent from 41 percent in 2020.
(To be continued)