Property consultant KMC Savills said office space transactions in the third quarter of the year dropped by 10 percent to 79,600 square meters (sq.m.) from 88,444 sq.m. the prior quarter.
KMC Savills has noted a consistent downtrend in the office space segment since the third quarter of last year, with overall vacancy rate remaining at 21 percent despite the lack of new supply in the past two quarters.
“However, a significant upswing in movements was seen in the Bay Area, with around 33,900 sq.m. of new transactions during the quarter,” it said.
KMC Savills said flight-to-quality is still evident in Makati central business district (CBD), Bonifacio Global City (BGC) and Ortigas Center, as tenants continue to vacate their spaces in older buildings and leverage affordable rents to upgrade their office spaces.
Average rental rates across Metro Manila have remained stable, growing by a marginal 0.4 percent compared to the previous quarter, except for Alabang CBD which experienced a slight decline of 0.5 percent.
KMC Savills, however, said this still does not reflect the significant discounts and concessions that several landlords are offering in an effort to attract tenants.
“The lack of leasing activity along with a strong supply pipeline anticipated in the next couple of quarters shall prompt the landlords to remain flexible,” it said.
Newer and certified green buildings continue to have an advantage as quality and sustainability move up to the top of the list for tenant considerations, the property consultant said.
“The pressure will be more evident on older office buildings which will have to rethink their strategies apart from rental adjustments to remain competitive. Landlords may consider upgrading the overall tenant experience by improving tenant management services or taking steps to improve sustainability,” it added.
Rent in Makati CBD was recorded at P1,020.90 per sq.m. per month for Grade A space. Vacancy was at 15 percent.
“Despite the relative inactivity during the quarter, we still expect vacancy rates to remain below 16 percent as 40,000 sq.m. in additional supply is expected to be completed within the next two quarters. Further rental adjustments from older office stock will likely push average rental rates down as they struggle to improve vacancy,” KMC Savills said.
In BGC, meanwhile, rent was at P1,049 per sq.m., slightly higher compared to Makati CBD. Vacancy was at 10.5 percent.
“An estimated total of 19,000 sq.m. of office space was vacated in the current quarter recorded with locators shifting their addresses to other nearby submarkets, with more competitive rental rates,” the property consultant said.
In Ortigas, rent stood at P691.8 per sq.m.
“We maintain our bright outlook for Ortigas Center due to its affordability along with its convenient location and the flexibility of its landlords co mpared to other top CBDs like Makati and BGC,” KMC Savills said.
“However, transactions may continue to be limited to newer buildings as rental rates become more competitive, with the additional 48,000 sq.m. and 39,000 sq.m. of office space set to be completed by fourth quarter 2023 and first quarter 2024 respectively,” it added. – Ruelle Castro
