The Philippine office property sector will continue to add up inventories until the end of the year as another 432,000 square meters of office stock is projected for completion in the last quarter, according to property and management consultancy firm Leechiu Property. 

Leechiu Property Consultants’ Director for Commercial Leasing Mikko Barranda, however, said that vacancy rates are seen to go down by 2024 onwards as projected completions start declining while demand is expected to improve.

Office vacancy rate, led by new completed buildings, is at 19 percent as of the third quarter of 2023, equivalent to 3.4 million square meters of space out of the current supply of 18.1 million sqm. Total leased office space for the Philippines is 14.6 million sqm.

The Philippine office property sector is still primarily driven by IT-BPM demand as Metro Manila is among three locations in the world with strong IT-BPM presence which exhibited positive net demand for the first half of 2023, at 240,000 square meters.

This was followed by Bengaluru at 350,000 square meters, and Delhi at 308,000 square meters. Notable locations with negative net demand for the same period are the financial districts of Los Angeles, San Francisco, and Shanghai.

Year-to-date demand for office space is 809,000 square meters for the first nine months of 2023 or 17 percent higher than in the same period last year, with 45 percent of space was taken up by the IT-BPM sector.

Notably, the bulk of the lease contracts are for multiple sites, unlike the previous trend where mega sites were leased for IT-BPM operations in a single location. 

Of the IT-BPM transactions count, 37 percent or 124,000 square meters of space was mainly leased in Metro Cebu, Quezon City, and Clark, Pampanga. 

IT-BPM firms are likely opening microsites or applying the hub-and-spoke strategy to allow their employees to work-near-home to maximize employee retention.

“There is still substantial live demand from IT-BPM, traditional, retail, and even POGO tenants that signals a strong finish for the year, potentially closing more than 1 million square meters—better than the sector’s performance in 2022,” said Barranda.

Current supply of office space is at 18.1 million square meters with 82 percent located in Metro Manila. Overall office vacancy is at 19 percent nationwide, with a majority of available space located in newly completed buildings. 

Bonifacio Global City and Makati City are still the preferred locations for office operations, as they exhibit the lowest vacancy rates at 9 percent and 13 percent, respectively.

“The trend for opening microsites or hub-and-spoke operations in office space located in non-core areas demonstrates the increasing potential for venturing out of Metro Manila to establish new sites in provincial areas,” said Barranda.