Office vacancy rate highest in 12 years

by Elijah Felice Rosales (The Philippine Star), 25 Apr 2021

POGO exit, work-from-home setup add to empty spaces

MANILA, Philippines — The shift to work-from-home setup and the exit of offshore gaming companies have worsened the office space vacancy rate in Metro Manila to a new high since the global financial crisis, a global property services firm said.

In a report, US-based Cushman & Wakefield said the vacancy rate in prime and grade A office spaces in Metro Manila went up to 10.7 percent in the first quarter, the highest and only double-digit rate since the 14.5 percent in the aftermath of the global financial crisis in 2009.

The vacancy rate widened by a sizable 710 basis points (bps) or 7.1 percentage points when compared to the same period last year, and by 290 bps when placed against the previous quarter.

Cushman & Wakefield attributed the wipeout in occupancy to the growing trend in private firms to adapt flexible work arrangements. Also, Philippine offshore gaming operators (POGOs) – a major tenant – also headed toward the exit last year as they wait for legislators to pass a more concrete measure to legalize their operations here.

Further, the construction of new office spaces were completed in the first quarter, and this added to the old stock left behind by firms and POGOs. According to Cushman & Wakefield, about two-thirds of the 203,000 square meters of new supply remain available in the market.

As vacancies jump to a record high, office space leasing in Metro Manila flips to favor tenants over property owners in terms of prices.

In the first quarter, the cost of renting in the nation’s capital slipped by 1.2 percent to P1,070 per sqm a month from last year, and also slid by 0.4 percent from P1,074 in the previous quarter.

On the other hand, offers in most prime and grade A office spaces in Makati City and Bonifacio Global City sustained their 2020 levels, although owners and developers are now beginning to stretch their payment terms in rent negotiations.

Cushman & Wakefield projects supply to overwhelm demand for the whole year, as regulations hindering the full resumption of work will suppress take-up of office spaces.

Tetet Castro, director and head of tenant advisory group at Cushman & Wakefield, said changes in work options would slow the recovery of the office space industry. Also, the uncertainty on when workers can report to office may force developers to postpone new and expansion projects until such time local outbreaks are contained.

“We are seeing restructuring and changes in real estate strategies of multinational companies materializing this year largely due to the continued implementation of remote work arrangement as it remains unclear when we can safely return to the office, as manifested by the recent surge in new cases,” Castro said.

Meanwhile, Cushman & Wakefield is banking on the implementation of the Corporate Recovery and Tax Incentives for Enterprises, or CREATE Act, to rejuvenate business confidence with the law’s provision to bring down corporate income tax to 25 percent.