The delivery of the 200,000 square meters (sq.m.) Grade A office space, initially targeted for the fourth quarter of 2024 and subsequently postponed to the first quarter 2025, has encountered an additional delay, with completion now projected for the second quarter this year, a report of property consultancy KMC Savills said.
Miguel Leonardo, assistant manager for Research and Data Management at KMC in an interview on Tuesday said some developers might be delaying their completion due to the high vacancy rates in “certain districts” such as the Bay Area.
According to Leonardo, these projects should have been part of the upcoming supply but their construction was put on hold.
Joshua delas Alas, associate director told Malaya Business Insight the delay is “still an effect of the pandemic.”
“Given the current situation in the office market, there is a chance that some of these projects are purposely delayed in anticipation of market improvement,” Delas Alas said.
Described as top of the line, Grade A buildings are often the location of the most sought-after office spaces or residential areas, KMC Savills said in its website.
It added Grade A buildings are typically brand new or if not, have gone through some type of redevelopment process. Major cities such as Makati, Ortigas and Taguig feature a slew of Grade A buildings as there is a high demand for them in the aforementioned prime locations. Some of the most common occupants of Grade A buildings include but are not limited to: banking institutions, law firms, investment firms, and the like as they need to showcase or portray an image of financial success. In Grade A buildings, there is no shortage of brass fixtures, glass fixtures, and impressive lobbies.
According to Leonardo, findings of its report cover projects being monitored by KMC Savills every end of the quarter.
“We do field work for each buildings and do the assessments,” said Leonardo. He declined to elaborate.
“Potential holdups in permitting and regulatory processes could also be contributing to these delays,” Leonardo said.
Not alarming
KMC Savills believe the delay is not that alarming because once completed, these projects would pull down the vacancy rates.
Leonardo said this will lead landlords to give out discounts or to lower their rates “Costs increase when construction is put on hold. What some developers do is finish some parts or floors and have them leased out while construction in other floors is ongoing. Technically, these are unfinished,” Leonardo said.
KMC Savills said this extended timeline could provide existing landlords with a longer window of opportunity to secure pre-leases with aggressive commercial terms and potentially secure occupancy.
“It seems some developers might be delaying their completion due to the high vacancy rates in certain districts. Moreover, we’re seeing a shift in tenant preferences towards fitted space compared to the bare shell of new developments, and potential holdups in permitting and regulatory processes could also be contributing to these delays,” Leonardo said.
Lower influx of Grade A space
In the report “Metro Manila Office Briefing for 1Q 2025” KMC Savills projects the supply of new Grade A office space in Metro Manila will significantly decrease over the next four years, totaling 700,000 square meter (sq.m.) compared to the 1.3 million sq. m. added from 2022 to 2024. Grade A stock now stands at 9.6 million sq.m.
“Despite steady take-up, this considerably lower influx of new space is still anticipated to exert downward pressure on vacancy rates over the medium to long term,” it added.
KMC Savills noted a low net absorption despite transactions surge.
The report showed Metro Manila’s office market recorded a total of 191,000 sq. m. in transaction volume during the first quarter of 2025, marking a substantial increase from the 101,000 sq. m. reported in the fourth quarter of 2024.
According to the report, activity was primarily concentrated in key business districts, namely Makati CBD (21 percent), Bonifacio Global City (15 percent), and Ortigas Center (14 percent).
Greater Ortigas and the C5 Corridor gained traction as more companies favored accessible locations, KMC Savills said.
Despite increased transaction volume, net take-up remained subdued at 14,000 sq.m. due to increased
vacancies left behind by Philippine offshore gaming operation (POGO) exits, mainly in the Bay Area and Makati Fringe.
According to the report, the average rental rate for office space across Metro Manila continued its downward trend, declining to P845.4 per sq.m. in the first quarter of 2025 from P849.9 per sq.m. in the preceding quarter.
Despite a static office supply landscape in the first quarter of 2025, the vacancy rate showed marginal movement at 20.6 percent from previous quarter at 20.7 percent.
“This stable vacancy rate, without the influence of new developments, underscores the current equilibrium in the market,” KMC Savills said.
Fitted office space in demand
KMC Savills also noted fitted office spaces witnessed increasing demand among occupiers seeking to expedite operational readiness.
These move-in ready solutions represented 52 percent of new leases, it said.
Moreover, we’re seeing a shift in tenant preferences towards fitted space compared to the bare shell of new developments, and
The report said buildings with efficient specifications have continued to maintain higher occupancy rates, highlighting the persistent demand for quality office spaces.
While vacated well-fitted office spaces contributed to rental growth in some districts, these were offset by more significant decreases in older stock, ultimately pulling the overall average down.
The persistent decline in rental rates is likely to result in lower vacancy rates, as the limited supply addition over the next few years will be insufficient to counteract this trend, KMC Savills said.
Performance by CBD
KMC Savills said Makati CBD demonstrated the most significant decrease in vacancy during the first quarter of 2025, driven by a strong net absorption of 19,000 sq. m. This strong demand more than offset the
impact of departing POGO tenants, resulting in a current vacancy rate of 18.8 percent for the district’s office sector
In BGC, the vacancy rate declined to 10.9 percent in the current period from 12.2 percent in the fourth quarter of 2024. Despite this tightening availability, average rental rates in the district eased to P1,055.3 per sq.m., likely suggesting landlord adjustments in pricing strategies to attract and retain tenants.
In Ortigas Center, the report said the first quarter of 2025 saw a substantial increase in net absorption for the district, reaching 20,000 sq.m., a significant jump from the 2,300 sq. m. recorded in the previous quarter. However, despite the strong demand, the district recorded the steepest decline in average rental rates settling at P658.1 per sq. m., a decrease of P14 from the previous quarter, the report added.
KMC Savills said the Quezon City office market experienced limited transactional activity in the first quarter of 2025, with a total transaction of 7,200 sq. m. This was outweighed by a substantial 7,600 sq.m. of space vacated, as tenants migrated to districts offering more modern and higher-quality office spaces with better amenities. This led to a negative net absorption of -392 sq. m. for the period.
The Alabang CBD office market saw a positive net take-up of 1,500 sq. m. in the first quarter of 2025. However, the sustained pace of absorption in recent quarters has been insufficient to make a significant dent in vacancy levels, which remain elevated at approximately 30 percent. This implies the need for stronger demand to absorb the existing supply.
The Bay Area experienced a negative net absorption of 39,000 sq.m., overriding the 33,000 sq.m. of transaction volume, primarily driven by the sustained reduction in occupied space by the POGO sector. Standing at 27.5 percent vacancy rate for the first quarter of 2025, the vacancy rate of this district is likely to climb further as more former POGO-occupied spaces enter the market.
