Office market seen stabilizing in H1

The performance of the Metro Manila office market is seen stabilizing and may improve further after the May national elections.

“For the office market, we’re seeing signs of market stability,” Jones Lang LaSalle (JLL) Philippines Head of Research and Consultancy Janlo de los Reyes said.

JLL said moderate take-up was seen in the fourth quarter of 2021 as gross leasing volumes registered at 75,713 square meters (sqm).

While the number is lower than previous quarters, Delos Reyes said that there is still improved sentiment, citing compliance concerns, rightsizing, and halt in vacancy uptick as key factors for the fourth quarter figures.

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“In terms of elections, we see that leasing activities may slow down in the first half of 2022 as more investors and occupiers postpone their leasing decisions as they wait and see where policies might change,” Delos Reyes said.

JLL said the information technology-business processing management (IT-BPM) sector remained the key driver of the market, specifically those that cater to the healthcare, financial services, e-commerce, and engineering domains. The sector accounted for 62.5 percent take-up in 2021 versus corporate occupiers with 36.6 percent take up.

“These domains drive both expansion and renewals from the previous quarter,” JLL said.

It added that office move-outs and rightsizing also slowed down in the fourth quarter 2021, and occupiers have settled their short-term position while some have hit pause on long-term commitments. 

Colliers Philippines, meanwhile, said it expects the Metro Manila office market to slowly recover especially in the latter half of the year as it projects net take-up to reach 307,400 sqm this year.

“We expect outsourcing and traditional occupiers to lead absorption in Metro Manila in 2022,” Colliers said.

It also expects gradual recovery in office rents this year. It reported that office rents dropped 12.4 percent in 2021, lower than the 17 percent decline in 2020.

“We see a slow recovery starting H2 2022 supported by sustained office absorption as inquiries are likely to materialize after six to 12 months,” Colliers said.

“The completion of new office space and the substantial decline in rents in Fort Bonifacio, Ortigas CBD and Bay Area should enable occupiers to consider these prime locations for their expansion and return to office plans in the next 12 months,” Colliers added.

Seizing Opportunities

Colliers suggested that tenants should continue seizing opportunities in the market, including lower rates in new buildings in major hubs such as the Bay Area, Ortigas CBD, Quezon City and Alabang.

“Landlords should continue lining up new projects and activate in a timely manner to capture demand as outsourcing and traditional occupants start reporting on-site,” Colliers added.

The future of work

Delos Reyes said companies are still evaluating what the future office spaces would look like.

“One thing is certain here: There’s more acceptance of a hybrid work model across occupiers. This means they’re open to having a percentage of their workforce work remotely,” Delos Reyes.

JLL also reported that the uptick in vacancy seen in the previous quarters halted in the last three months of 2021 at 17.97 percent, lower than the 18.04 percent registered in the third quarter.

In previous quarters of 2021, there was an increase in vacancy levels, owing to the pull-out and move out of IT-BPM and POGOs in the first and third quarters.

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He said the rental market is also firming up, with the gap between headline and transacted rents narrowing to 4.0 percent in the fourth quarter from 19.9 percent in the third quarter.

“We’re also seeing fewer concessions from landlords, which may be an indication of optimism across stakeholders. We may see that gap narrowing further, moving forward, but with the Omicron hitting us in the  2022, we’re expecting this gap to widen again in again in the first half of 2022,” Delos Reyes said.

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The article was originally published in The Philippine Star – Property Report PH and written by Catherine Talavera.

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