Steady demand for NCR prime office space
THE anticipated return to office space demand at pre-pandemic levels has been slowed down by the prevailing elevated global interest rates. Another factor is that the unclear policies toward remote work schemes of local Information Technology-Business Processing Management (IT-BPM) companies have likewise stalled their growth and expansion decisions.
These were the findings of the latest report issued by Cushman & Wakefield (NYSE: CWK), one of the largest global real estate services firms with approximately 52,000 employees in over 400 offices and approximately 60 countries.
Claro Cordero, Cushman & Wakefield director and head of Research, Consulting & Advisory Services, said, “Despite inflation rates cooling down, global interest rates will remain elevated, even after approximating their peak levels. As a result, the return to pre-pandemic global demand for office spaces from traditional sources remains distant. On the other hand, demand for more outsourcing activities will stimulate occupier demand, albeit at a lower growth rate, which will improve the overall market vacancy rates in established CBDs.”
According to the report, overall Grade “A” and prime office vacancy in Metro Manila remains steady at 16.83 percent by end-Q3 2023, a 6-bps decline quarter on quarter (QoQ) from the reported vacancy of 16.90 percent in Q2 2023 and a 72-bps increase year on year (YoY) from the reported 16.12 percent vacancy in Q3 2022.
The return to office space by several occupiers is still prevalent in several submarkets in Metro Manila. Nonetheless, positive absorption figures are recorded overall with roughly 38,000 sq m net absorption in Q3 2023, bringing the year-to-date net absorption to roughly 0.13 million sq m. They are caused by several occupiers that have relocated or consolidated their office spaces in one location to take advantage of the prevailing high vacancies.
As office vacancies remain high in Metro Manila, the majority of the landlords of Prime and Grade “A” office spaces have kept their headline rates steady.
However, some of them have posted a slightly lower headline rent for their office spaces by end-Q4 2023, bringing the average asking rent of Prime and Grade “A” office space to P1,023 / sq m/month. This figure is a 1.8 percent decrease QoQ from the previous quarter’s rent of P1,042/sq m/month and a 1.5 percent decrease YoY from the reported rent of P1,038/sq m/month in the same quarter the previous year.
Recovery phase
Despite the decrease in headline rates, the continued increase in the net absorption figures is still indicative of the continued, albeit slow, recovery of Metro Manila’s office real estate market.
Tetet Castro, Cushman & Wakefield director and head of Tenant Advisory Group, described the Metro Manila office real estate market to be “in recovery phase by end-Q4 2023.”
She cited other developments that can increase vacancies: the large volume of office space expected to be completed in the first half of 2024; and the proposed amendments to legislation that allow the IT-BPM sector to operate on a more flexible work arrangement.
Cordero said that the growing demands for sustainable construction practices, sustainable property management methods, and highly flexible building systems will continue to “ensure healthy occupier demand while future-proofing commercial real estate developments.”