Higher office space vacancy rate seen in 2023

Vacancy rate in office space this year could further exceed growth in demand with new stocks coming on stream, according to the country’s leading property management and consultancy firm Colliers.

Kevin Jara, Colliers Philippines head of the office sector in his presentation at the Q4 2022 Philippine Property Market Briefing reported of sustained improvement in transactions in the last quarter of 2022 and some remarkable activity in the provinces particularly in Cebu and increases in healthcare business process outsourcing (BPOs) and new investors.

Despite the stronger demand, Jara said that vacancies will still remain high because of supply glut as some buildings are still being completed, thus the flexible work spaces sector was doing very well in 2022.

For instance, he pointed out that supply of office space in Metro Manila grew 43 percent in 2021 to over 632,000 square meters from 422,000 sqm in 2021.

This could result in vacancy rate hitting 20.2 percent in 2023 from 18.8 percent as of end 2022. The net take up in 2022 was pegged at 110,000 sqm while projected take up in 2023 is expected at 228,000 sqm.

Primary business districts led by Bonifacio Global City, Makati business district, and the Bay Area recorded high transaction volumes last year. Traditional offices accounted for 50 percent of total demand, while the IT-BPM sector with 43 percent and the POGO sector with a measly seven share of the market.

There was, however, a snag in the last quarter of 2022 because of the new regulation on the transfer of IT-BPO firms registration from the Philippine Economic Zone Authority (PEZA) to the Board of Investments (BOI).

But growth in demand this year will be boosted by new take leases. He discounted the possibility of the 2022 scenario repeating itself in 2023 where companies just stay in the sideline or not renewing leases.

Jara stressed that the effect of a scenario where companies might choose to recalibrate and not renewing contracts is already “muted” although he added that companies may not be expanding as aggressively.

“Overall, we see positive forecast for 2023 but how strong will the market recover is the question,” said Jara.

For 2024, Colliers projected 570,000 sqm, 511,000 sqm in 2025 and 498,00 sqm in 2026.