With the prolonged pandemic, office space vacancy in Metro Manila is now projected to worsen to over 15 percent this year from original forecast of 12.5 percent, while rental rates are falling 20 percent off as land values remained flat.
The virtual Q2 2021 Philippine Property Market Briefing of Colliers, the leading property management and consultancy services firm, showed a starker property market across all class assets — office, residential, hotel, and retail for the year.
According to Dom Fredrick Andaya, Colliers Director for Office Services, the original forecast of 12.5 percent vacancy rate for 2021 was already breached as vacancy rate rose to 12.7 percent. This has forced Colliers to revise its forecast upward to 15.6 percent for 2021.
With higher vacancy rates, landlords are also forced to drop their rents. From 15 percent reduction in rates, landlords are expected to cut rates further by as much as 20 percent.
Based on the Colliers Philippines Research, there was an estimated office stock of 12.528 million sqm in the second quarter of 2020 with vacant space of more than 1.375 million sqm. The number of office stock increased in the second quarter of 202 to 12.671 million sqm and growing vacancy of 1.605 million sqm.
Joey Roi Radoc, associate director for research, also showed a flattish forecast for land values in major central business districts in Metro Manila with Bonifacio Global City topping as the most expensive followed by Manila Bay Area, Makati Business district and Ortigas Center.
The data also showed a declining take up in the first half this year for the IT-BPM office market with only 60,000 sqm office space as against 63,000 sqm in the same period of 2020.
The POGOs (Philippine offshore gaming operators) continued a downtrend to 27,000 sqm from 48 sqm in the same first semester of 2020.
The traditional office space market, however, showed some promise with improved level of transactions for 136,000 sqm in the first half this year from 101,000 sqm in the same period last year.
But supply is on the rise. Data showed that buildings accredited by the Philippine Economic Zone Authority are expected to have delivered 142,000 sqm of office space in the second quarter this year as against 57,000 sqm in the second quarter of 2020.
As of the first half of 2021, data showed that PEZA has a total stock of which the available office stock stood at 1.6 million. An estimated 1.11 million sqm in new supply is coming on stream in the second half this year up to 2022.
As of end first half this year, the total office space stock in Metro Manila was placed at 12.67 million sqm.
With more supply coming in, the data showed that vacated spaces outpaced transactions with tenants.
As of the second quarter this year, there are only 85,000 sqm under transaction but the vacated space ballooned to 197,000 sqm in the second quarter this year from 173,000 sqm in the first quarter of this year. In the third quarter of 2020, there were 224,000 sqm vacated spaces as against 96,000 sqm under transactions.
Across Metro Manila, the research showed there are a total of 1.6 million sqm of vacant space, with absorption period of 3 years.
Despite this not so rosy scenario, the property management firm said the office market would remain relevant post-pandemic and demand is expected to recover in 2022.
The research cited enablers to office leasing recovery. These are COVID-19 vaccine program, global economic recovery, implementation of the CREATE Law, flexible and innovative lease terms to attract tenants, infrastructure projects, adequate supply to meet demand in the countryside.
The research also recommended some points to respond to concerns by occupiers. It said that developers and landlords adopt flexibility to reduce the investment risk of occupiers, risk sharing through tenant improvement allowance, offer fully fitted spaces and highlight building amenities, incorporate post COVID workplace best practices, and pipeline assessment to manage the supply driven vacancy by considering provincial locations.