Cushman & Wakefield said overall office vacancy rate in the country at the end of the third quarter has ballooned to a level not seen since the global financial crisis.
Claro Cordero Jr., director and head of research, consulting and advisory services at Cushman & Wakefield, said office vacancy rate reached 14.4 percent as of end-Sptember.
This, he said is, almost equal to the level estimated in the fourth quarter of 2009, widely-considered as the bottom of the real estate market down cycle caused by the global financial crisis.
Cordero noted that Metro Manila alone accounted for 22 percent of the total vacancies in unoccupied spaces in developments during the quarter.
“The vacancy rate is anticipated to swell further as the amount of space vacated by major tenants still outweighs the total space taken up in the market. The exit of offshore gaming operators continues to drive the increase in vacant spaces in Metro Manila,” Cordero said in a statement.
“Pasay City, where the majority of the offshore gaming operators were located, has over 62,000 square meters of office spaces that have been vacated.”
Net absorption in the third quarter, according to Cushman and Wakefield, reached -40,000 sq.m. bringing up the running annual total to -140,000 sq.m. as of the end of September.
Cordero noted that average prime and Grade ‘A’ asking rent in Metro Manila closed at P1,047/sq.m./mo., a decline of 1.8 percent quarter-on-quarter and 3.3 percent year-on-year.
“More developers made further downward adjustment in the published rates for some developments in Metro Manila. Average rents in established CBDs [central business districts] such as Makati and BGC were more resilient, as majority of the developments which exhibited huge spike in vacancy rates were in the emerging business districts.”
In the short-term, Cordero said one of the downside market risks will be the escalating vacancies, as firms remain cautious and may even be forced to adjust their space requirements.
He said, however, that office space demand is expected to normalize over the long-term as space density expands to address prescribed health protocols amidst the blended or hybrid—i.e., partly working in the office and partly working from home—workforce arrangement.
“The overall vacancy rate in Metro Manila is almost similar to levels last seen during the global financial crisis, and is expected to even breach the all-time high figure recorded 12 years ago,” said Tetet Castro, director and head of tenant advisory group at Cushman & Wakefield.
“Some major markets are even demonstrating over 25-percent vacancies already as offshore gaming companies continue to return large amounts of office spaces, as well as the unoccupied additional spaces in newly-completed office buildings.”
Castro said demand from the business process outsourcing (BPO) sector may start filling in spaces again as early as the middle of next year, with a number of prospects particularly interested in taking up fitted spaces vacated due to the pandemic.
Cordero said the delayed resumption of full business activities continues to push the vacancy rate in the office sub-sector upwards while the average asking rate modestly declined as major office space operators – primarily in the CBDs – hold onto their pre-pandemic asking rents.
“Leasing activities are seen to remain tamed in the short- to medium term as the stricter and more refined taxation rules for the Philippine offshore gaming operator (POGO) industry are likely to drive away some gaming operators, leaving the resurgence of the office property segment to be primarily influenced by the resumption of the expansion plans of the information technology and business process management (IT-BPM) industry.”