Property consultant Colliers expects rental rates of office space to dip by another 15 percent this year as the vaunted recovery of the economy gets moved to next year.
Richard Raymundo, Colliers managing director, said the real uptick of the economy may only materialize once the country’s coronavirus mass inoculation gets underway, which may only be possible by the third or fourth quarter of this year.
“With all of these, realistically, you’re going to see companies going back to the office, a semblance of increasing mobility probably on the first quarter of 2022 once vaccinations happen,” Raymundo said.
Joey Bondoc, Colliers head of research, said existing tenants continue to rationalize their office spaces, opting not to renew contracts for unused spaces. Others also choose to pre-terminate their contracts.
Office rents declined by an average of 3.7 in the first quarter compared to the prior quarter, according to Bondoc.
This will lead to a further correction in rates especially in submarkets with high vacancies due to lease cancellations like Quezon City, Fort Bonifacio and Makati fringes, coupled with a “significant amount of upcoming supply” like in the Bay Area and Ortigas central business district (CBD).
Colliers said office space added 199,900 square meters (sq.m.) in the first quarter with the Makati CBD and the Bay Area contributing 75 percent of the new supply.
Full- year supply, however, may just amount to 878,200 sq.m., down from an initial estimate of 886,200 sq.m.
“Buildings with low pre-commitment levels and those in the early stages of construction are likely to compel landlords to defer completion timelines until market conditions improve,” Colliers said.
“From 2021 to 2025, we see the delivery of 641,200 sq.m. of new office space per annum, down 3 percent from our previous forecast of 658,300 sq.m. in the fourth quarter of 2020.
The Bay Area, Fort Bonifacio and Quezon City will likely account for close to 50 percent of the new supply during the period,” it added.
Space takeup, meanwhile, continues to be dominated by e-commerce and information technology-business process management firms, with the sector contributing 35 percent of the 157,000 sq.m. transactions closed for the first quarter.
The net take-up, however, posted a 52,800 sq.m. contraction for the period amid higher lease cancellations, non-renewals and pre-terminations vis-a-vis new contracts signed. The first quarter contraction was also the fourth consecutive quarter of decline.
“In the first quarter, we saw e-commerce firms such as Shopee and Amazon leading office space take-up while substantial space take-up was observed from traditional occupiers, data centres and even POGOs (Philippine offshore gaming operators). Most of these firms occupied spaces in Ortigas CBD, Fort Bonifacio and Quezon City. Traditional firms covered about 68,400 sq.m. of office deals,” Colliers said.
“In our opinion, data centers are also likely to drive office space demand moving forward as they expand in developing countries such as the Philippines to cater to the growing demand,” it added, noting that data centers occupied 19,000 sq.m. of new spaces in the first quarter.
Colliers sees net takeup recovering by the end of 2021, especially with the successful rollout of the vaccines.
Office vacancy is expected to hover at 12.5 percent for the year. First quarter vacancy was at 11 percent, up from just 4.1 percent last year.
