COLLIERS PHILIPPINES has observed that outside Metro Manila, Cebu remains the top choice for outsourcing firms and multinational companies. Cebu led in terms of office space take-up outside of the capital region in 2023, with a total of 65,800 square meters (sq.m.). Despite strong net take-up, vacancies remain elevated due to new supply, which is expected to persist through 2024. Colliers believes that shared services, healthcare companies, and other multinational firms are likely to occupy more office spaces in this location. While rationalization of office real estate is still occurring, Colliers projects a slight increase in net take-up in 2024. The persisting tenant-leaning market for Cebu should provide an opportunity for tenants to take advantage of the newer and better-quality office buildings, skilled labor pool, and improving infrastructure. Landlords should remain proactive in improving their occupancy and developing higher quality buildings to address the demands of a more discerning tenant base.
NEW SUPPLY TO NEARLY DOUBLE IN 2024
In 2023, we recorded the delivery of 60,200 sq.m. of new office space with the completion of Johndorf Tower in Cebu Business Park (CBP), Faustina Center in CBP Fringe, and Skyrise 3B in Cebu IT Park (CITP). In 2024, we project the delivery of 107,900 sq.m. of new office space; with the reclamation area accounting for more than 50% of new supply. Among the buildings due to be completed in 2024 are Astra Corporate Center, Excelsior Corporate Tower, Filinvest Cebu Cyberzone Tower 3, Grand Tower Cebu Condo Office, Il Corso, MAHI, Patria de Cebu and Northwing Tower 1. From 2024 to 2026, we project the annual delivery of about 73,500 sq.m. of new office space with CITP and reclamation area cornering a combined 58% of the new supply.
CEBU LEADS OFFICE TRANSACTIONS
About 208,800 sq.m. of office transactions were recorded outside of Metro Manila in 2023, down from the 221,100 sq.m. posted a year ago. Cebu accounted for 112,900 sq.m. of deals or 54% of total transactions outside the capital region. Outsourcing firms dominated, covering nearly 75% of total deals in Cebu. Among the notable transactions include spaces occupied by Concentrix, OfficePartners 360, Avant, TOA Global and Optum. These firms took up spaces in Cebu IT Park.
As of end-2023, vacancy in Cebu reached 20.4%, a slight improvement from the 21.7% vacancy posted in 2022. Demand continues to outpace new supply, resulting in the marginal drop in vacancy. However, in 2024, we expect vacancy to rise to 21.3%, given the delivery of 107,900 sq.m. of new office space.
In 2023, we recorded a net take-up of 65,800 sq.m., down from the 109,200 sq.m. in 2022. In 2024, we project net absorption to reach 72,000 sq.m. as we expect greater absorption of office space from third-party outsourcing and shared services firms looking to set up and expand their operations.
OFFER CONCESSIONS AND CONSIDER HIGH QUALITY OFFICE SPACES IN THEIR FUTURE OFFICE PIPELINE
Over the past couple of years, we observed significant relocation and consolidation transactions which are considered flight-to-quality and flight-to-value movements as the market remains to be in favor of tenants. Spaces are available in high quality buildings with green features for tenants to align their ESG initiatives with. Considering this, landlords are advised to proactively engage their tenants to understand how they can retain them within their portfolio through the offering of attractive deal structures while implementing building improvements to achieve high occupancy levels. In addition, landlords are also encouraged to introduce higher quality office buildings in their pipeline to attract future demand.
CAPTURE DEMAND FOR FLEXIBLE WORKSPACE
As of end-2023, flexible workspace vacancy in Metro Cebu dropped to 20%, significantly lower than the 27% vacancy posted in 2022. Flexible workspace operators such as BPO Seats, Avant Offices, and Regus have capitalized on the demand for flexible workspaces by adding new sites to their portfolio. Profiles of notable flexible workspace occupiers include multinational companies, contact centers, accounting and financial services firms.
With the market’s increased preference for non-traditional leases in Metro Cebu, Colliers encourages landlords to seize this opportunity by incorporating flexible workspaces in their leases. Landlords may also look into joint venture agreements with serviced office providers.
CAPITALIZE ON CHANGING TENANT PREFERENCE
Colliers has noted that tenant’s preferences have changed significantly over the past few years. There is a luxury of choice in the Cebu market for discerning tenants to align with. This is an opportunity that landlords should embrace to take advantage of the growing market coming from shared services, health information management, IT and software development and other multinational companies.
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The article was originally published in Business World and written by Dom Fredrick Andaya.
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