As hybrid or remote set-ups continued to be the preferred work arrangement in the Philippine business landscape, the market for physical office spaces all over Metro Manila grappled to keep their doors open last year although a hint of silver lining is seen this year.
In a recent Office Briefing for 4Q 2023 report by real estate analytics firm KMC Savills Inc., the overall office market in the National Capital Region (NCR) recorded a 79 percent reduction in net take-up to 74,900 square meters (sqm) in 2023 from 270,900 sqm net absorption in 2022.
Vacancy rates also increased by 1.1 percent to 20.1 percent in 2023, attributed to few pre-leasing activities of finished office buildings.
Average rents also declined by 1.2 percent at P857 per sqm monthly last year from 0.8 percent in 2022, with office rentals in Alabang and the Bay Area tumbling from 4.7 percent in 2022 to 4.9 percent in 2023.
KMC Saville attributed these constraints in the office market to the downsizing of office spaces by companies that have adopted hybrid work arrangements for various reasons such as trimming costs.
The office submarket in Bonifacio Global City (BGC), for instance, has the highest average net rental rate as of the fourth quarter of 2023 at P1,0541 per sqm or $1.76 per square feet (sq ft), along with a 10.9 percent vacancy rate.
It is followed by Makati Central Business District (CBD) at P1,021.2 per sqm or $1.70 per sq ft with a vacancy rate of 14.3 percent. Average rental rates in the area are expected to gradually rise in 2024.
The Bay Area logged an average net rental rate of P737.9 per sqm or $1.23 per sq ft, while Ortigas Center, Alabang, and Quezon City have rents around P600 per sqm. The vacancy rates in these submarkets, except for Quezon City, ranged from 25 to 35 percent.
Another factor noted by the firm are non-renewals of expiring contracts signed in 2018 by companies that are seeking better options in the market. Moreover, the market is forecast to see losses due to expiration this year of lease contracts signed in 2019.
"Landlords should ensure that they remain flexible while also considering improving their building’s facilities and services to secure key tenants," noted analysts in their report.
Despite the gloom cast over the market, a silver lining remains in the overall market's active transaction activities, having leased 420,000 sqm of office space in 2023. This is seen to remain stable throughout 2024, but may be "outweighed by the expected completion of multiple office buildings."
Wins can also be observed in the individual submarkets. For instance, office demand is retained in the Makati CBD due to transactions from the information technology and business processing management (IT-BPM) sector. Due to lower rental rates and its accessible location, growth is predicted for the Ortigas Center.
IT-BPM and government locators also drove the increase in office transactions in Quezon City, matching analysts' outlook of strong demand for office spaces in the area.