Office vacancy rate climbs to new record high 16.2%

MANILA, Philippines — The average office vacancy rate in Metro Manila further climbed to reach a new record-high of 16.2 percent in the second quarter this year as the net takeup of office space remained negative, a real estate advisory firm said.

In its latest Philippine Office and Investment MarkeBeat Reports, US-based Cushman & Wakefield said while leasing activity continued to pick up as eased protocols led to improved economic activities, office space returns still outpaced takeup.

“Aside from observed space returns, the number of untaken spaces in newly completed buildings contributed to the continued increase in vacancy. The estimated overall vacancy rate further climbed to 16.2 percent, higher than the revised Q1 2022 figure of 15.4 percent. This new record-high vacancy rate is also higher than the year-ago figure of 11.2 percent,” the report noted.

It added that vacancy rates are expected to remain elevated mainly due to renewed construction activities. In the second quarter, approximately 47,400 square meters worth of Grade A office spaces were added to the Metro Manila stock, leading to a total inventory of 9.1 million sqm.

Due to elevated vacancy rates, average asking rents in prime and Grade A office developments contracted by 2.7 percent year-on-year and 0.8 percent quarter-on-quarter to P1,037/sqm per month. With competition for transactions becoming tighter, even landlords of some of the premium buildings made downward adjustments in their asking rates this quarter.

“While market activity is improving, rightsizing initiatives continue to be observed. The financial impact of the pandemic also motivates some occupiers to consider relocating to more cost-effective buildings and even submarkets. This has pushed a couple of landlords to recalibrate their rents in order to remain competitive,” said Tetet Castro, director and head of Tenant Advisory Group at Cushman & Wakefield.

Claro Cordero, director and head of research, consulting and advisory, however, said the eased mobility has improved the number of companies resuming their business operation in physical offices.

“The office sub-sector is buoyed by the information technology and business process management (IT-BPM) industry which continues to attract prospective new entrants that express interest in locating to the country by early 2023. In Q2 2022, fresh takeup from offshore gaming companies was observed,” he said.

“Nonetheless, other existing occupiers are reevaluating their real estate footprint as they seek to reassess future real estate occupation strategies.”