The COVID-19 pandemic has sent vacancies in Metro Manila’s office spaces rising and rental rates falling in the second quarter this year despite no new office building completion for the period, according to an office space study.
KMC Savill’s latest Office Briefing for 2nd Quarter 2020 showed that without any new completions, Metro Manila saw an increase in office vacancies of around 58,600 square meters in the second quarter of 2020.
“The vacancy rate increased by a full percentage point to 6.5 percent during the quarter. A decrease in the demand was seen across most submarkets, with both BGC and Ortigas Center taking the biggest declines in occupancy,” the report stated.
According to KMC, there had been no new office space that were completed in the second quarter as construction and deliveries of properties have all been delayed. “We expect majority of the delayed buildings to come online by 4th quarter of 2020 at the earliest. However, given the circumstances, the incoming pipeline may add more pressure to the office market,” the report added.
Vacancy rate is highest in Ortigas Center at 16.2 percent and Quezon City at 13.2 percent while Makati has the lowest at 1.8 percent and Bay Area at 3.7 percent.
In terms of rents, KMC reported that average rental growth in Metro Manila managed a 2.7 year on year increase to P1,020.8 per square a month. However, as the pandemic continues to put pressure on the office market, KMC observed that overall rents declined by 0.3 percent from the previous quarter.
Rents are lowest in Alabang at P694.7 per square meter average net rental and Ortigas Center at P695.7 per sqm. Highest rents are reported in Makati at P1,150 followed by BGC at P1,036.2.
Majority of the submarkets recorded a quarterly slide, with Ortigas Center taking the biggest hit. We expect a downward repricing of base rents in the near term if current market conditions do not improve.
With second quarter 2020 representing the first full quarter of Metro Manila under quarantine, there are early signs that overall office demand may be slower in the coming months although the study foresees offshore and outsourcing (O&O) sector to compensate the slack post-COVID.
Amidst the pandemic, the study also projected that demand from the Philippine Offshore Gaming Operator (POGO) sector may wane due to operational difficulties caused by the stringent lockdown and increased pressure from tax authorities. The POGO sector has been dominantly responsible for the tight vacancies in some Metro Manila submarkets since 2017.
In terms of supply, BGC has the highest current stock at 1,829,458 square meters of office space followed by Makati with 1,191,611 square meters and Bay Area with 872,157 square meters. The study also noted of robust projects in the development pipeline for 2020-2023. For instance, Ortigas Center has 457,857 square meters of upcoming office space supply followed by BGC with 405,279 sqm and Bay Area with 318,926 sqm.