NCR office vacancy rates feared to hit new highs in 2022

By: Doris Dumlao-Abadilla – Reporter, Philippine Daily Inquirer, 26 Nov 2021

The office vacancy rate in Metro Manila may hit new highs in 2022 with the influx of new supply from property developers, according to property consulting firm KMC Savills. In its third quarter property report, KMC Savills noted that the office vacancy rate in the metropolis further increased to 15.5 percent, more than double than the level a year ago, as new supply came in while overall market sentiment was bearish.

Average rental rates in the metropolis declined by another 2.2 percent year-on-year in the third quarter, although this was partly mitigated by improved leasing activities in Bonifacio Global City and Ortigas.

As lease preterminations and nonrenewals continue to hound the sector, KMC Savills expects vacancy rate to breach the 20-percent mark in 2022.

“With more than a million square meters of new supply scheduled to become available in 2022, vacancies may continue to break record-level high,” KMC Savills chief operating officer Rosario Carbonell said in a recent briefing. “Landlords will battle for new occupiers and tenant retention as vacancies increase.”

As such, she noted that property developers had been investing more to make their buildings “healthier” for tenants, such as by improving air filtering and circulation system. These features are “no longer just nice to have” in office search, she said.

With remote work becoming mainstream, organizations are seen to continue decentralizing workforce, challenging traditional administrative processes and portfolio planning.

The office property market also continues to grapple with the exodus of Philippine offshore gaming operators (Pogos), which used to take up the bulk of new office supply in the market until China started its crackdown against the sector, while local tax uncertainties and pandemic-induced lockdowns further affected the Pogo industry.

Market absorption As the pullout of Pogos left multiple office and residential buildings unoccupied, this sector only accounted for 26 percent of total occupied stock in the Bay Area—once the sector’s hotbed—as of end-September.

KMC Savills noticed that the highest leasing activities had been concentrated in central business districts with relatively lower average rental rates and in specific areas which were centrally located.

This explained the improved leasing activities in Ortigas Center, Carbonell said.

In the third quarter, KMC Savills estimated that 98,000 square meters of office space had been taken up, bringing to 325,000 square meters the office take-up year-to-date.

Excluding lease preterminations, net market absorption was estimated at just 147,000 square meters. However, this was a turnaround from the net negative absorption of 164,000 square meters in 2020—another sign of recovery that should bode well for the industry, Carbonell said.

This year, business process outsourcing firms accounted for most of the new leases, while expanding e-commerce firms added to the demand.