COLLIERS International Philippines said small businesses which occupy small spaces in office buildings are the most vulnerable in terms of the impact of the slowdown of the property sector due to the new coronavirus disease 2019 (COVID-19).
In a report, Colliers said based on their database, total office stock in Metro Manila stood at 11.96 million sq.m. of leasable space with small businesses occupying between 1.9 and 4.7 percent.
Colliers said this means the current vacancy of about 5 percent in Metro Manila could possibly increase significantly depending on how these companies are affected and unable to maintain their office spaces. The combined share of these occupiers to the total office stock in Metro Manila is 14.7 percent, the report said.
Small businesses which occupy less than 1,000 square meters (sq.m.) make up 3.6 percent of the leasable spaces in Metro Manila while those occupying 1,000 to 1,999 sq.m. making up about 4.7 percent.
“Survival is a question of how much cash resources a company has to withstand this pandemic… (But) Survival should be a shared cause,” said Dom Fredrick Andaya, director of Colliers International Philippines, citing feedback of some of its clients which said they only have cash that will last two to three months.
When owners of malls gave rent relief to their tenants, office occupiers started asking their own landlords for the same relief.
The landlords, on the other hand, are also looking to find relief elsewhere such as reprieve on corporate loans which has yet to happen.
In the meantime, both continue to spend on salaries of their employees and some other fixed expenses which are draining the well of cash.
Colliers International suggests that occupiers should look at possible ‘gives’ to the landlords in exchange for rent relief, rent abatement, adjustment in the dates of handover, lease and rent commencement, longer rent-free fit-out period, etc.
These include applying the advance rent to the last three months of the lease term and then apply the security deposit after the advance rent subject to replenishment immediately thereafter the pandemic; rental deferment for a few months in exchange for a longer lease term equivalent to the length of the rent deferment period; rental discount for the duration of the pandemic to be paid by the occupier 12 months after in cash or in staggered basis; rent-free within the lease term can be exchanged and applied;
modification of the rent and escalation structure to recover the rent relief extended; adjustment in other fixed charges like common area charges and aircon charges equivalent to the savings on water and power consumption; waiver of parking and signage rentals; removal of the pre-termination option, removal of the “no reinstatement” provision; removal or modification of the sublease and assignment provision; among others.
Colliers’ office market survey showed transactions, declined by 24 percent year-on-year.
On the supply side, office stock for 2020 will be 20 percent lower than earlier projected due to halted construction.
Vacancy stood at about 5 percent but Colliers expects this to inch up because of the softening of demand from both business process outsourcing and Philippine offshore gaming operators which comprise roughly 30 percent each of the total office lease transactions annually.
