Landlords delay rate increases – Cushman & Wakefield

While vacancies remain high in prime and Grade ‘A’ office spaces in Metro Manila, majority of developers maintain steady headline rents in their developments, placing the average asking rent at P1,042 per square meter per month by end-Q3 2023. 

This figure is a 0.35 percent growth from the posted average rent of P1,037 per sqm per month in the same period last year despite being a marginal increase on a quarter-on-quarter basis. 

This is according to Cushman & Wakefield’s latest MarketBeat report released last Nov. 14. 

This, coupled with the improvement in the reported vacancies, is suggestive of the continued—albeit abnormally slow—recovery of office demand, said the property consultant.

Tetet Castro, director and head of Tenant Advisory Group at Cushman & Wakefield said “overall vacancies of Prime and Grade ‘A’ Offices in Metro Manila marginally decreased to 16.83 percent in Q3 2023 from the reported vacancy of 16.90 percent in Q2 2023.” 

Despite having positive absorption figures of roughly 38,000 sqm in the quarter, the marginal adjustment of vacancies can be attributed to the continued return to office by some occupiers in the city. 

Higher rental rates

Average asking rents, on the other hand, increased by 0.15 percent by end-Q3 2023 to P1,042.17 per sqm per month from the posted average rent of P1,040.60 per sqm per month. 

“While some landlords have adjusted their rents in some of their developments, majority are still keeping it steady while noting that their rents are still negotiable, ” Castro said.

Claro Cordero, director and head of Research, Consulting & Advisory Services at Cushman & Wakefield said the current structural shift in office space occupation sweeping the global market has also been manifested (despite the relatively higher return-to-office ratio) in the local market, particularly in major central business districts. 


Elevated vacancy rates are likely to persist as global corporate occupiers brace for hybrid work arrangements and a new legislation is underway that will allow local IT-BPM companies to implement remote work schemes.

“On the other hand, headline rents of prime developments in major CBDs remained stable, while other developments in the decentralized districts post moderate decline due to availability of office spaces from new completion and from the spaces which have remained vacant after the flight of Philippine offshore gaming operations (POGO) companies,” Cordero added.

Despite the economic headwinds and the major structural shifts shaping future real estate occupancy strategies of corporate office occupiers, the recovery of the office market post-pandemic (between the prime and non-prime markets) may take on a divergent trend. 

“As large corporate occupiers chart their respective long-term real estate strategies, high-quality developments will be on high demand as future occupancy requirements entail highly-flexible building systems, lighting, design and space re-design flexibility, access to public transportation and set of amenities to suit the occupiers’ wants and the hybrid work schemes. This will exert undue pressure on low-quality buildings, especially those which cannot match the future market demands for office space occupancy.”

Long-term Public Infrastructure Investments to Drive the Growth Momentum of the Provincial Residential Market

The increased leisure activities and normalizing operations among businesses are revitalizing the demand for retail space, whilst several freed spaces at the height of the COVID-19 crisis remained vacant, particularly in retail establishments that opened just before the pandemic onset and those in fringe locations.

“The fast-tracked evolution of e-commerce, propelled by a growing demand for easier access to goods and services by the growing population, along with increased internet penetration, bolstered the demand for warehouse facilities and last mile logistics, whilst strong interest from investors buoyed the demand for lots in industrial estates near Metro Manila. Meanwhile, the manufacturing sector remained lackluster due to headwinds from surging inflation and a high-interest rate environment that dampened global demand,” Cordero also said.

Growth in provincial areas in terms of new developments and prices have remained competitive in established markets in Metro Manila as these new growth areas have gained significant attention due to an increase in public infrastructure investments. The long-term impact of these transport infrastructure developments will continue to support the growth momentum of the provincial residential market.

The hospitality segment is showing strong signs of rebound amidst the recovery in visitor arrivals while the upcoming holiday season has raised optimism in the hotel segment, which is expected to boost occupancy levels and rates to pre-pandemic levels. The hotel segment made a significant recovery in terms of new supply and project launches due to the anticipated recovery of international arrivals and the MICE industry, despite the drawbacks resulting from factors which include high inflation and staffing shortage.

Net Zero Targets Continue to Influence Investment Market Decisions

Estimated average office (gross) rental yields in Q3 2023 remained unchanged from its Q2 2023 level at 6.90 percent.

Year-on-year, however, the rental yields increased by about 70 bps from its level in Q3 2022. 

C&W Research estimates rental yields to remain unchanged in the short-term, even as the Bangko Sentral ng Pilipinas (BSP) decided to take off-cycle hike in the target reverse repurchase rate in October 2023 to further address inflation concerns.

“Global economic headwinds such as persistently elevated inflation and the resulting high-interest rate environment, coupled with intensifying global conflicts, particularly the ongoing Russia-Ukraine war and Israel-Palestinian conflict, create further market jitters which could dampen the recovery of various demand sources. Revenge spending on durable goods and services will likely take a backseat in the short-to-medium-term and will temper growth in domestic tourism, improvement in shopping centers, footfall, and recovery of retail sales, as long-term effects of elevated inflation levels kick in.”

“Lingering prospects of slower economic growth and the high-interest rate environment challenge the expansion of the Philippine REIT market. The onset of a hybrid work scheme, early exit of POGO companies, and ongoing office space rationalization of corporate occupiers generally weigh on expectations of the future growth of office space demand,” Cordero said.

However, the challenging investment environment is likely to limit financing options and capital-raising activities. 

C&W Research expects significant transactions to take place, as the gap between buyers’ and sellers’ expectations, as well as the differential rate between the key yield rates and interest rates, both narrow signaling the start of market recovery,” Cordero said. 

 “Net zero targets continue to influence investment market decisions exerting redevelopment pressures for old and low-quality developments. However, the challenging investment environment is likely to limit financing options and capital-raising activities. C&W Research expects significant transactions to take place, as the gap between buyers’ and sellers’ expectations, as well as the differential rate between the key yield rates and interest rates, both narrow, signaling the start of market recovery,” Cordero also said.