Property consultant Colliers said the Philippine office market is poised to transact 300,000 square meters (sq.m.) of space this year as the segment continues to recover from the pandemic.
Kevin Jara, Colliers director for office services-tenant representations, said the first quarter recorded a net demand at 75,000 sq.m.
“We expect vacancy to remain below 20 percent, marginally increasing to 19.6 percent by the end of the year. We are still expecting over half a million new office space to come online,” Jara said.
First quarter transactions closed at 240,000 sq.m., 88 percent higher than last year.
Jara said this is also higher than the normalized quarterly average of 200,000 sq.m. last year.
“Traditional firms, or the non-BPOs (business process outsourcing) or non -POGOs (Philippine offshore gaming operations) still drives the most office deals with 107,000 sq.m.
BPOs composed of third party outsourcing and shared services came in at second at 31 percent of the pie,” Jara said.
“Then we’ve also monitored some POGO transactions, mostly concentrated in the Bay Area at 54,000 sq.m.,” he added.
Jara, however, noted that while there was an increase in takeup, the deal size in some sectors appear to be decreasing.
“For instance, the average deal size for traditional firms used to be around 700-800 sq.m. per deal this quarter at 600 sq.m. We don’t think this is going to be a problematic trend.
It’s just that firms are still continuing to rationalize and right -size their office footprint,” he said.
A total of 96,000 sq.m. of new space came online in the first quarter, from three new buildings in the Ortigas, Makati and Bonifacio Global City (BGC) central business districts.
“These three buildings contributed 96,000 sq.m. of new office space higher than 48,000 sq.m. that was completed in same period last year,” Jara said.
Jara said for the year, a total of 553,000 sq.m. of space is expected to come online before this tapers off to 300,000 to 400,000 sq.m. annually until 2027, as the developers rationalize their pipeline.
Jara said incoming supply will put a lot of stock in Quezon City.
Metro Manila vacancy was recorded at 19 percent at about 2.7 million sq.m., flat compared to the 19.3 percent recorded the previous quarter despite the prevailing trend of flight to quality.
Rental rates grew by less than 1 percent for the period with spreads – the difference between asking and closing rates – ranging between 5 percent and 30 percent especially in high vacancy volume areas.
“In secondary office districts such as Mandaluyong and Quezon City, there are some buildings aligning with a nearest CBD rates, in that case Ortigas which increases the spread of asking and negotiated rates. However, there are landlords that are marketing their spaces lower than CBD rates to continue to be more competitive. But of course the spread is lower at close to 5 percent,” Jara said.
Jara said the upcoming US election is expected to have a limited impact on the local office space dynamics, with demand picking up in the quarter before the election period before dipping and again recovering.
“We see occupiers scrambling to sign up before the election is decided, then dips in the fourth quarter by about 30 percent, but also subsequently recovers at an average of 40 percent in the following quarter or the first quarter of the next year. So it kind of offsets itself,” Jara said.