Expansions, upgrades fuel Manila office market
COLLIERS INSIGHTS
THE Metro Manila office market performed better than expected compared to our initial projections. Net take-up in 2023 more than doubled compared to the previous year, with transactions continuing to outpace lease surrenders. Despite new supply driving its marginal increase, the vacancy posted as of the end 2023 has averted the 20-percent level. Colliers continues to note deals from traditional and outsourcing firms implementing a mix of flight-to-quality and flight-to-cost measures. The office market has also seen more expansions (50% of transactions) and new entrants (10% of transactions).
Colliers encourages occupiers to continue taking advantage of the current market conditions and investing in modern workspaces for the benefit of their employees. With sustainability now becoming a minimum requirement, landlords are encouraged to incorporate green features and secure certifications in both existing and future developments. Some landlords with presence in better performing submarkets may consider building more high-quality and green spaces to capture future demand.
TRANSACTIONS UP 37%
As of the end of 2023, office space deals across Metro Manila reached 827,700 square meters (8.9 million square feet), up 37% from the 603,800 sq.m. (6.5 million sq.ft.) recorded a year ago.
This figure is already more than half the 1.5 million sq.m. (16.1 million sq.ft.) recorded pre-COVID or in 2019. Traditional firms led transactions, accounting for 46% of the total while outsourcing and Philippine Offshore Gaming Operator (POGO) firms cornered 34% and 20%, respectively.
The Bay Area, Quezon City, and Makati central business district (CBD) dominated in terms of transactions in 2023, accounting for more than half of the total transactions in the capital region. Among the notable deals in Q4 2023 include spaces occupied by Samsung in Fort Bonifacio, Foundever in Ortigas Fringe, Optum in Makati CBD, and Fluor in Alabang. Colliers has also observed substantial deals from POGO firms especially in the Bay Area.
NET TAKE-UP EXCEEDS FORECAST
Vacancy as of end-2023 reached 19.3%, marginally higher than the 18.7% recorded in the third quarter (Q3) of 2023, due to the delivery of new office buildings and space surrenders from non-renewals and pre-terminations. In 2024, vacancy is projected to reach 19.6% due to low pre-commitment levels in upcoming buildings and expected surrenders from prepandemic leases.
We recorded 279,800 sq.m. (3.0 million sq.ft.) of net absorption in 2023, higher than our initial forecast of a 220,000 sq.m. (2.4 million sq.ft.) net take-up and the 110,500 sq.m. (1.2 million sq.ft.) recorded in 2022. Colliers is optimistic that net absorption will gradually improve in 2024 as we continue to receive inquiries for new setups, expansions, and relocations within and outside the capital region. In 2024, we project net absorption to reach 336,000 sq.m. (1.6 million sq.ft.).
TAPERED NEW SUPPLY
In 2023, Colliers recorded the completion of 611,700 sq.m. (6.6 million sq.ft.) of new office space, lower than the 736,100 sq.m. (7.9 million sq.ft.) completed in 2022. In Q4 2023 alone, about 279,600 sq.m. (3.0 million sq.ft.) of new supply became online with the delivery of the International Finance Center and Uptown East Gate in Fort Bonifacio, Trium Square in Pasay and Global Business Tower and SM Fairview Tower 3 in Quezon City. In 2024, we expect new supply to reach 598,300 sq.m. (6.4 million sq.ft.). We see the Bay Area, Quezon City, and Alabang covering nearly half of the new supply. From 2024 to 2026, Colliers sees the annual delivery of 470,400 sq.m. (5.1 million sq.ft.) of new office space, lower than the 607,700 sq.m. (6.5 million sq.ft.) completed annually from 2020 to 2022 as developers remain cautious of their respective portfolio vacancies.