Metro Manila office vacancy rate back to global financial crisis level

MANILA, Philippines — The overall office vacancy in Metro Manila at the end of the third quarter stood at 14.4 percent, approximating the vacancy rate level estimated in the fourth quarter of 2009, widely considered as the bottom of the real estate market downcycle precipitated by the global financial crisis, a leading property consulting firm said.

Unoccupied spaces in developments completed in Metro Manila alone accounted for 22 percent of the total vacancies during the quarter, Cushman & Wakefield head of research, consulting and advisory services Claro Cordero said.

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“The vacancy rate is anticipated to swell further as the amount of space vacated by major tenants still outweigh 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,” he said in a report.

Pasay City, where majority of the offshore gaming operators were located, has over 62,000 sqm of office spaces that have been vacated.

Net absorption in the third quarter reached -40,000 sqm bringing up the running annual total to -140,000 sqm as of end-September.

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.

Cordero said the average prime and Grade ‘A’ asking rent in Metro Manila closed at P1,047/sqm/month, 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 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,” he noted.

He said in the short-term, one of the downside market risks would be the escalating vacancies, as firms remain cautious and may even be forced to right-size their space requirements. Over the long-term, however, office space demand is expected to normalize as space density expands to address prescribed health protocols amid the blended or hybrid – i.e., partly working in the office and partly working from home – workforce arrangement.

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“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. 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,” Tetet Castro, director and head of Tenant Advisory Group at Cushman & Wakefield, said,

“Demand from the BPO sector will hopefully 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.”

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Article was originally published in Philippine Star and written by Iris Gonzales.

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