Office vacancy rate hits new record high in Q1

The overall office vacancy rate in the country posted a new high in the first quarter as fresh office space supply entered the market and as tenants continued to exit, a study by a global property research firm showed.

In a report, Cushman & Wakefield said approximately 182,000 square meters of new office spaces were completed within the first quarter, bringing the consolidated prime and Grade A office supply to around 9.1 million sqm.

“Due to new supply completion and continued exits from key tenants, the overall vacancy rate grew to 15.8 percent, surpassing the previous record-high vacancy rate of 14.5 percent in 2009,” the report said.

While the net absorption figure remained positive, Cushman & Wakefield said occupier exits still occurred in the quarter, most notably from the offshore gaming sector which returned at least 47,000 sqm of office space.

“With almost 600,000 sqm of supply pipeline expected within the remainder of 2022, vacancy rate is expected to further swell in the absence of new major transactions,” it added.

Meanwhile, average prime and Grade A office rents in Metro Manila closed at P1,045/sqm per month, a slight 0.3 percent growth quarter-on-quarter, signaling that landlords and developers are anticipating the eventual recovery of market demand, Cushman & Wakefield said.

The rental figure is also 3.6 percent lower than the P1,084 recorded in the first quarter of 2020, just before the average rental figure started declining.

Tetet Castro, director and head of Tenant Advisory Group at Cushman & Wakefield, said landlords and developers are attempting to return asking rents to pre-pandemic levels as they regain confidence that demand has started to recover following the easing of restrictions, as well as the mandate for full return-to-office for certain companies.

“But as vacancy remains inflated, potential tenants are still likely to enjoy a wider room to negotiate better terms,” she said.

Claro Cordero, director and head of research, consulting and advisory services, said the return-to-office mandate to entities registered with investment promotion agencies such as the Philippine Economic Zone Authority as Metro Manila and more parts of the country shifts to Alert Level 1 has created a ruckus, especially among the companies and their employees who have thrived in the implementation of work- from-home arrangements at height of the crisis.

“As hybrid work set-up is seen to transcend the pandemic in many markets, the office property sub-sector could benefit from the development of optimal agile working policies, comparable to other markets in the region, to safeguard its position in the highly competitive IT-BPM industry.”