In 2024, the office vacancy in Metro Manila was at a record high at 19.8 percent, according to Joey Bondoc, senior researcher at Collier’s Philippines. At the press briefing held at the Grand Westside Hotel on March 18, he further reported a projected 22 percent vacancy rate increase this year. “When we look at the projection forecast, we're not seeing a substantial reduction in vacancy. So, really developers and even brokers really need to look for other demand drivers in the market at this point,” said Bondoc.
From last year’s figures, Colliers noted that traditional companies are occupying massive office space while outsourcing occupancy also increased. From old office buildings, they are transferring to newer, high-quality office spaces at a discounted rate. Government agencies continue to drive office deals at 27 percent, followed by banking and financial services at 10 percent, transportation, travel, and logistics at 6 percent, IT and software at 5 percent, and healthcare at 4 percent.
Aside from taking advantage of the 40 percent rental correction that started in 2020, they are moving into offices that are green, LEED, and BERDE-certified spaces. In addition, the fit-out allowance being offered by developers sway companies to occupancy. In detail, Bondoc said, “Imagine if you lease out an office space for five years, they will give you P10,000 per square meter to fit out your bare office space.”
While the Metro Manila office vacancy rate remains high, a closer look indicates that not all sublocations are affected by the oversupply. The Makati CBD enjoys a vacancy rate of 8.3 percent, Ortigas Center at 12.8 percent, and Fort Bonifacio at 17.2 percent. The increasing vacancy comes from the peripheral locations such as Alabang with a 32.5 percent vacancy rate, the Bay Area at 34.9 percent, and Makati fringe at 35.9 percent. “The more established business districts are definitely doing well. In fact, we believe that with this level of vacancy in Makati CBD, it is up for further development,” added Bondoc.
As a demand driver, BPO companies continue to occupy office spaces. However, Bondoc pointed out that the recently launched implementing rules and regulations (IRR) on work from home (WFH) setups are unlikely to have a stronger impact on office deals in Metro Manila.
Under the signed CREATE MORE IRR, BPO companies are allowed up to 50 percent of their employees to avail WFH. In 2022, PEZA-registered IT-BPOs allowed not more than 30 percent WFH arrangement.
To ease the projected high vacancy rates next year, Bondoc underscores the need to develop a diverse market to raise demand for occupancy, citing co-working space providers KMC Solutions, Australian retailer Anko, and shared service companies as examples. He also mentioned the Anglo-Eastern firm and seafarer manpower companies that are now located in the Bay Area, driving the demand for office spaces.
Bondoc also shared that office space developers are slowing down completion, supplying less than half of the total completion figure from 2017 to 2019. “So, 380,000 sqm of new office space will be completed every year starting from 2025 to 2027,” said Bondoc. "Out of the 1.2 million square meters of office space that will be completed during that period, 60 percent is green, LEED, and BERDE-certified office space,” he added.
With developers ramping up the sustainability features, Bondoc believes that this will be another major demand driver and a strategic move to be on top once the market recovers.
Outside of Metro Manila, Cebu remains the biggest market with its vacancy rate at 19.7 percent from its total stock of 1.4 million sqm as of 2024. The province also has the biggest share of provincial transactions at 71,000, mainly from major BPO companies. Pampanga follows with a 25 percent vacancy rate with 528,900 sqm stock, Davao with a 7 percent vacancy rate with 361,900 stock, and Bacolod with a 25 percent vacancy rate with 180,900 sqm.
Bondoc emphasized that the provincial transactions are dispersed and come from major BPO companies. “The major players are already located outside of Metro Manila. What we have seen, BPO companies, even if they are expanding, they want to capture the highly skilled workforce and the graduates these cities churn out every year.”
"The shift to suburbia is not just confined in the residential space, but even in the office sector, there is a pronounced shift,” he concluded.