THE office market in Metro Manila saw a 32.1-percent year-on-year increase in gross leasing volumes with 500,000 square meters (sq.m.) taken up in the first nine months of the year from 388,000 sq.m. in the same period last year.
Janlo delos Reyes, head of research at property consultancy JLL Philippines, said government agencies including the Department of Foreign Affairs (DFA), Department of Trade and Industry (DTI) and the Department of Trade and Industry (DTI) drove the demand for the nine-month period.
These agencies took out 67,000 sq.m.
However, move outs grew 6.5 percent year-on-year, with 271,000 sq.m. released.
Delos Reyes said JLL sees take-up to reach 600,000 to 700,000 sq.m. by yearend.
Vacancy rate has softened to 19 percent but Delos Reyes said this could rise to 20 percent with 1.1 million sq.m. of new supply coming in by 2028.
Rental rates are trending downwards to reach P970 per sq.m. per month by yearend.
According to Delos Reyes, the solid take-up in the nine-month period is mainly driven by business process outsourcing (BPO) occupiers and supported by significant take -up coming from DTI in Makati City and the NBI and the DFA this current quarter in Pasay City.
Delos Reyes said Quezon City, Taguig City, Pasay City and Makati City, accounted for around 78 percent of the total leasing volumes in the third quarter of 2024.
He said in the third quarter, corporate and traditional occupiers outpaced the BPO sector at 54 percent to 46 percent, attributed mainly to the DFA take up. But otherwise, if one takes that transaction out, the BPO sector remains the dominant demand driver for the quarter.
“We anticipate the BPO sector to continue to drive the market moving forward as select companies continue to occupy and expand their footprints in the metro, “ Delos Reyes said.
However, despite the solid takeup, around 129,000 sq.m. of spaces were released in the third quarter alone, bringing the total to around 271,000 sq.m. in the first nine months of the quarter.
“This is underpinned by the rationalization of spaces by office occupiers as they continue to act on their office strategy for the short to medium term. They’re still acting on their strategy, whether they’re going to downsize or whether they’re going to expand their footprints in the country,” Delos Reyes said.
JLL projects moveouts to persist, but at a slower pace, as select occupiers continue to review their office footprints in the future.
Delos Reyes said on the city level, the cities that were leading the way for office transactions are the same cities that are seeing released spaces.
“That’s reflective the concentration of activity in those cities,” Delos Reyes said.
Select major pullouts are in Quezon City. A 4,300 sq.m space was vacated by a BPO firm and another 7,200 sq.m. was released by another company.
In Pasay City, a BPO released around 8,000 sq.m. In Bonifacio Global City, a BPO company vacated around 4,000 sq.m., a flex space provider released 1,000 sq.m. and a financial services firm let go of 1,600 sq.m.
According to Delos Reyes, stable office take-up in existing buildings pulled down vacancy levels to around 19 percent. However, the new supply entering the market continues to register low peak commitment.
By end of the year, JLL said vacancy levels will reach around 19.2 percent to 19.7 percent.
“We’re still seeing a volume of stock of amounting to around 125,000, sq.m and there’s not much take-up in these buildings over the medium term. We expect vacancy levels to rise further to around 20 percent at least above 20 percent because we were seeing around 1.1 million sq.m. of new office space over the next couple of years,” Delos Reyes added.
At the city level, vacancy levels are not even, the JLL report said.
What’s worth noting here is that Bonifacio Global City has maintained its double -digit vacancy rate due to the steady take-up in that district, together with the relative absence of new supply.
“So there’s a bit of tightening in terms of the vacancy levels moving forward. We expect vacancy levels to be mixed for across the cities as we see move-outs to continue or persist over the next couple of months,” Delos Reyes said.
On rentals, JLL noted overall weighted rates continue to trend downwards, reflecting the sustained soft leasing conditions.
“The rental gap between headline rates and the transacted rates continue to be in double digit level, at 10 percent, behind the supply pressure and elevated vacancy levels that have favored occupiers over the past of the quarters,” Delos Reyes said.
He added there has rental rates have been on a downward trend since the second quarter of 2023.
“We project rentals to continue their downward trend and hit the floor of around P970 per square meter per month (by yearend). With the supply pressure of around 125,000 sq.m. coming in by end of the year, we do expect rentals to remain soft in the near term,” Delos Reyes said.
Rental performance on a quarter-on- quarter basis has been mixed with some landlords retaining their rents to attract tenants. Some of them have been lowering the rates because of their prolonged vacancy levels. Delos Reyes said this is predominantly coming from Paranaque and Pasay areas, and this may be attributed to the absence of internet gaming licensees.
