Office space transactions in the Metro Manila office market continued its upward trajectory in the first half of the year mainly driven by traditional and outsourcing occupiers, recent data from a professional services and investment management firm showed.
In its recent quarterly market report, Colliers Philippines said office deals across the capital region reached 458,700 square meters (sqm), up 53 percent from 301,300 sqm a year ago.
“The Metro Manila office market is on track to breach the volume of transactions recorded in 2023 at 827,700 sqm,” Colliers said.
It noted that traditional firms accounted for 56 percent of deals, followed by Shared Services and Third-party Outsourcing (28 percent) and POGOs at (16 percent). Motivations of the deals were evenly split between expansions and relocations, Colliers added.
Per submarket, the Bay Area, Fort Bonifacio and Makati CBD covered 59 percent of the deals in Metro Manila in H1 2024. Among the notable deals during the period include spaces taken up by: National Bureau of Investigation, Infosys, Department of Trade and Industry, Accenture, Converge, and Concentrix. These firms occupied spaces in the Bay Area, Makati Fringe, Ortigas Fringe, and Quezon City.
Net absorption in the first half of the year reached 173,000 sqm, up 26 percent from the 137,000 sqm of net take-up a year ago.
Negative take up seen by yearend due to POGO ban
Despite office space transactions seen to breach last year’s volume, Colliers expects a negative office space take-up this year due to the potential impact of the recent pronouncement of the President on banning Philippine Offshore Gaming Operators (POGO). Colliers revised its forecast to -154,000 sqm of net take-up from its previous estimate of 336,000 sqm.
“The upcoming US elections is projected to partly tame demand as occupiers will likely be cautious with their expansion plans in the short term,” it added.
POGO impact on office market temporary
Apart from office space absorption, the ban on POGOs is also seen to result in a temporary increase in vacancy. By end-2024, Colliers expects vacancy to reach 22 percent from 19.3 percent in 2023 and 18.3 percent in the first half of 2024.
“Given the declaration on the POGO ban by the President, we believe there is no cause for any lasting concern in the office market. The exposure of the office market is limited to selected areas in Metro Manila and POGOs only comprise a minimal amount in the portfolio of the largest developers in the Philippines,” Colliers Philippines Director for Office Services Tenant Representation Kevin Jara said.
Data from Colliers showed that as of the end of the first half of the year, POGOs occupy about 489,000 sqm of office space in Metro Manila or about 3.5 percent of the total office stock.
Jara shared that based on an analysis they conducted, assuming that all POGO players essentially exit the market in full force by the end of the year, Metro Manila office vacancy levels could reach a maximum of 33 percent and 19 percent vacancy if it’s just a partial exit.
However, Jara emphasized that this vacancy is likely to taper down to around 19 percent by next year.
“The reason for our demand forecasts–that’s why we remain confident– is that it’s really the traditional office space occupiers and the BPOs that are driving the market, not the POGOs. So if you consider our transaction activity from this year compared to the same period last year, actually, we’re 50 percent up,” Jara said.
“If you consider vacated spaces from the number last year, we’re down 30 percent. So you know, these factors come into play and we see that there will be a sustained demand in our traditional office occupiers and BPO occupiers. Of course there’s the election (US), but as I mentioned in the previous report, the US election does have a temporary effect on the office market, but it usually recovers quite quickly in the succeeding quarter after the elections,” Jara added.
Some areas less affected
Colliers Managing Director Richard Raymundo emphasized that while there’s going to be an increase in vacancies if POGOs exit, there are some areas in Metro Manila that are less affected.
“Like if you look at Makati and Fort Bonifacio, there’s very little POGOs anyway, and your vacancy is starting to inch down to single digit levels,” he added.
Jara pointed out that it is the Bay area and fringes of Makati that have the potential to be most affected in terms of vacancy rates as it may increase to a maximum of around 50 percent and 40 percent, respectively.
He explained that since POGOs are required to secure approval from local government units before operating, this has led to their operations concentrated only in certain locations in Metro Manila.
“You know it’s a good thing that you know POGOs need LGU approval before they can even operate in a certain location and it somehow protected the overall office market– the regulation or the policy that you need a letter of no objection from City Hall before you can operate,” Jara said.
“And now we’ve seen the POGOs really just concentrated in certain locations and not in the entire market in Manila,” he added.
