Philippines office vacancy rate drops in Q3

First time since pandemic

MANILA, Philippines — The real estate market is starting to show signs of a pickup as the overall office vacancy rate in Metro Manila dropped for the first time since the start of the pandemic, a leading property research and consultancy firm said.

In a report, Cushman & Wakefield said the vacancy rate for Grade A offices in the capital closed at 16.1 percent at the end of the third quarter, declining by 10 basis points (bps) from the second quarter.

“This is the first time the average vacancy rate declined, after maintaining a positive trajectory since Q1 2020,” the report said.

It noted that while the rate was still 190 bps higher year-on year compared to the estimated vacancy rates in Q3 2021, the quarter-on-quarter improvement “shows that demand is slowly recovering. “

It added that average asking rents in Metro Manila closed at P1,038 per square meter per month by end-Q3 2022, a growth of 0.1 percent quarter-on-quarter.

“While this is still a 0.8 percent contraction year-on-year from the monthly rate of P1,046 per sqm., the contraction is slower than the -2.7 percent contraction recorded in Q2 2022, suggesting marked overall improvement in market takeup,” it said.

“Market activity continues to improve as even the mask-wearing mandate having been eased in Q3 2022. While there are still potential rightsizing initiatives from companies who are still working on their workplace strategies, we can expect some considerable takeup from new entrants in the next couple of quarters. Market fundamentals are slowly improving, and we are enthusiastic that this trend will continue as we enter 2023,” said Tetet Castro, head of Tenant Advisory Group at Cushman & Wakefield.

Cushman & Wakefield said with the advent of hybrid work practices, several companies may consider operating in multi-sites, which may mitigate higher occupancy costs and wages due to elevated inflation rates. This scenario bodes well for the continued growth and expansion of the IT-BPM and outsourcing industries, which will likely fuel growth in office space demand in the medium-term.

“Many corporate occupiers remain unsure about their future office needs – hence, a mix of real estate strategies are in the offing. Future occupational strategies have been a mix of less space allocation per worker and an overall increase in occupancy cost due to upgrades into office space serving multiple purposes with the objective of attracting the employees back to the office,” said Claro Cordero, head of research, consulting and  advisory services at Cushman & Wakefield.