Vacancy rate in Metro Manila’s office market is projected to hit 8.3 percent by the end of the year, fast approaching the 8.9 percent level recorded in the aftermath of the global financial crisis in 2009, according to property consultant Colliers International.
The projected vacancy rate is a huge increase from the 4.9 percent vacancy rate Colliers recorded in 2019.
As of the third, 113,000 square meters (sq.m.) have been vacated compared with 600,000 sq.m. taken up in the same period last year.
Joey Bondoc, Collier head of research, said Metro Manila’s office market will continue to see a “challenging” environment as far as leasing is concerned.
“POGOs (Philippine offshore gaming operations) have been vacating space while some traditional and outsourcing firms have either closed shop or are rationalizing their office footprint with remote working arrangements,” Colliers said.
Bondoc said this is the second consecutive quarter Colliers recorded a negative net takeup this year.
Collier said POGOs vacated 154,000 sq.m. with Quezon City accounting for the bulk at 40 percent, followed by Bay Area, 41,000 sq.m.; Alabang, 20,000 sq.m., Makati CBD, 13,000 sq.m.; and Ortigas CBD, 10,000 sq.m.
“Aside from POGOs, traditional and outsourcing occupants contributed to a vacancy increase in the first nine months of 2020. In our view, this is mainly due to traditional firms closing shop due to the pandemic and outsourcing firms rationalizing office requirements as they have started implementing work- from-home schemes,” Colliers said.
“The muted business outlook for the next 12 months, as shown by the central bank’s latest survey also does not bode well for the office leasing market,” it added.
Colliers said tenants are waiting until the new coronavirus disease 2019 pandemic and lockdown issues are settled before they re-engage the market.
“Hence, Colliers sees a continued slowdown in demand for the remainder of 2020,” it said, noting the negative net vacancy could further balloon to about 121,900 sq.m., a huge turnaround from 899,200 sq.m. net takeup in 2019.
Bondoc said landlords have become more flexible in accommodating tenants’ requests to lower lease rates, providing discounts ranging from 6 to 25 percent, higher than the 5 to 15 percent range reported in the second quarter.
Colliers is retaining its forecast of a 17- percent average drop in lease rates for the year, the steepest decline since the 14 percent drop recorded in 2009.
“In our view, this may even go higher as we may see a further correction in submarkets where there is significant space vacated by POGOs, including the Bay Area, Quezon City, and Makati CBD. Rates are likely to tread a slow path to recovery, which should start with a 2 percent rise in the second half,” it said.
Colliers believes office leasing recovery will primarily hinge on recovery of general business sentiment which should entice local businesses to re-open; and recovery of global economies that outsource services from the Philippines.
“In our opinion, key segments such as telecommunications, medical coding, health information management, and e-commerce should help lift leasing and hence, rental growth recovery in the second half,” it added.
In the third quarter, Colliers recorded new office completions of about 77,700 sq.m.,. Ortigas CBD accounted for 70 percent.
“These projects should further intensify competition among landlords in Metro Manila fringe areas,” it said.
Due to the lockdown-induced construction delays, new office supply in 2020 is estimated to reach 385,000 sq.m. Office buildings that are 50 percent completed as of the second half are likely to be delayed by about six to 12 months while towers that are less than 50 percent completed are likely to be delayed by 12 months or longer.
“We are also likely to see delays in new completion from 2021 to 2024,” Bondoc said. (R. Castro)