The Metro Manila office market faced challenges in 2023, marked by a sharp 79.5-percent drop in demand and a rise in vacancy rates to 20.1 percent, according to property consultancy firm KMC Savills Research.
KMC said that while some submarkets exhibited signs of recovery, overall performance remained sluggish, prompting concerns for the upcoming year.
Net take-up, a key demand indicator, plummeted 79.5 percent year-on-year to 74,900 square meters, resulting in a 1.1-percent increase in vacancy rate to 20.1 percent.
The lack of pre-leasing activity in newly completed buildings further suppressed demand, and average rents continued to decline by 1.2 percent, reaching P857 per square meter per month.
The shift towards hybrid work arrangements and expiring leases from 2018 contributed to the challenging environment, KM Savills said. Many companies downsized office space, while others sought better deals in a tenant-friendly market.
The Makati central business district (CBD) offered a ray of hope. Net take-up in the fourth quarter surged from 700 sq. m. to 12,300 sq. m., driven by the IT-BPM sector. Tenants prioritizing sustainability over affordability led to increased demand for green buildings, despite their premium rents being more than 27 percent higher than the average.
Bonifacio Global City (BGC), another major CBD, experienced a decline in office take-up and a rise in vacancy rates due to non-renewals and relocations, resulting in 21,500 sq. m. of office space being vacated. Ortigas Center displayed consistent positive take-up and rising rents, indicating potential for 2024, with lower rental rates and accessibility making it an attractive option.
Alabang CBD recorded a slight increase in net take-up but stagnant vacancy rates, while Quezon City experienced strong demand and falling vacancy rates.
The outlook for Quezon City in 2024 is positive due to competitive terms and minimal incoming supply at 31,400 sq. m., including the expected completion of SM North EDSA’s 3rd tower.
The Bay Area saw a slow recovery with increasing take-up but declining rents. Despite having the highest total transactions, the submarket recorded a 4.9 percent year-on-year decrease in rental rates from P74 per square meter per month to P738 per sq. m. a month.
Makati Fringe was particularly active, reaching 31.2-percent vacancy rate at the end of the year. The Greater Ortigas area had a 13.2-percent vacancy rate, with tenants moving into premium addresses within major business districts posing a significant challenge in the fringe districts.
KMC said while some submarkets offer optimism, the overall outlook for 2024 remains uncertain. The completion of numerous office buildings could lead to further pressure on vacancy rates and rents. However, strong demand in certain sectors, particularly IT-BPM, could offer some counterbalance, it said.
The report advised landlords to adapt to changing market dynamics by offering flexible lease terms, investing in building upgrades and targeting tenants with expiring leases. Sustainability will also play a crucial role in attracting and retaining tenants.