Property consultant Cushman and Wakefield said— four cities Manila, together with Bangkok, Ho Chi Minh and Taipei — are the only cities in Asia Pacific whose office space markets remain landlord-friendly, having managed to minimize the impact of the softening office space market due to the coronavirus pandemic.
With the figure down from 11 locations at the start of the year, Cushman and Wakefield said “all four are reporting softening conditions.”
“While the level of transactions is significantly down, approximately 50 percent of the pipeline supply amounting to around 450,000 sq.m. (square meters) scheduled for completion within 2020 is expected to be delayed. Office developers and landlords have been very selective in providing rental concessions to tenants and outgoings remain generally the same,” said Claro Cordero, Cushman and Wakefield director for research, consulting and advisory services.
Cordero said the biggest office space occupier – the information technology and business process management (IT-BPM) sector – remained operational even during the strict lockdown period.
Cushman and Wakefield noted as of the second quarter of the year, demand for Grade A office space has declined 45 percent quarter on quarter.
“Cost containment and capital preservation remain key strategies moving forward as regional net absorption continues to witness a decline,” the property consultant said.
It added that the lack of suitable office space in the medium-term may artificially push up gross effective rents, already expected to be piled up with increased amount of outgoings attributed to additional expense in maintaining the health and safety standards in the office buildings.
Second quarter net rents remain unchanged from the first quarter of 2020 level at P1,028 per square meter per month.
Cushman and Wakefield noted widespread rental decline across the region.
“While there are green shoots of emerging economic recovery, sectors such as office, retail and hotel will lag this recovery and likely continue to soften over the next six months. Total rental declines for the year are expected to range up to 15 percent for markets that were already encountering headwinds prior to the pandemic,” it said.
“The vacancy outlook is much more nuanced, reflective of the wide range of conditions prevalent in each market, such as in Tokyo, as they entered the pandemic with a vacancy rate of less than two percent, while vacancy rates in other markets like Malaysia, Jakarta and many China markets were over 20 percent,” it added.
From a corporate occupier perspective, market uncertainty has led many non-business-critical decisions to be put on pause, it said.
New enquiries for space were down and regional net absorption has softened further to 6.9 million square feet in the second quarter from 10.1 million square feet in the first quarter, “which is 30 percent of the three-year rolling quarterly average,” Cushman and Wakefield said.
The added demand from IT-BPM firms is seen “to benefit from the expected surge in global demand for outsourcing services by traditional companies, directly benefitting the Philippines as an offshore service destination,” Cordero said.
Cushman and Wakefield said the competitiveness of the local IT-BPM/outsourcing sector against other emerging markets, however, may be eroded due to lack of suitable office spaces in Metro Manila, specifically those with Philippine Economic Zone Authority incentives as completion is delayed by the pandemic.
“Higher rents may possibly displace other companies which have already been severely affected by the extended economic downturn,” it said.
“If sustained by the steady source of highly-qualified labor pool, new mixed-use developments in secondary/sub-urban locations outside Metro Manila catering to IT-BPM firms may benefit from the foreseen expansion plans of IT-BPM firms,” it added.