The country’s office space supply is expected to reach 3.3 million square meters in the next three years, as ongoing developments mature and tenants that adopted hybrid and remote work are likely to right-size their office footprint, according to a property market consultancy firm.
Santos Frank Knight said in its latest office supply forecast office space vacancy rate remained at double-digit level in the fourth quarter and would likely persist in 2022 as work-from-home arrangement of the business process outsourcing industry may last until September 2022.
“Office leasing activities have slowed down during the pandemic as occupiers tried to figure out their next moves. In 2022, we expect to see organizations make their real estate decisions, from expansion to right-sizing,” said Santos Knight Frank senior director of occupier solutions and services Morgan McGilvray.
Santos Knight Frank said that while a number of organizations were shifting to hybrid or remote work model in the longer term, they would likely reduce the size of their offices upon the expiry of their leases. This would have a a net positive effect on office leasing demand in 2022, it said.
The firm predicted that the office market would be generally positive in 2022 as the outsourcing requirements from the US, Australia and Europe to the Philippines is expected to lift the real estate footprint of IT-BPO companies.
It noted that companies started to gradually shift to new workplace strategies to address demands that emerged during the pandemic. Occupiers are increasingly considering models such as “hub & spoke”, which decentralizes offices to bring them nearer to employees.
Tenants are also spreading out their offices to more than one city as a business continuity strategy against the negative impacts of localized lockdowns and natural events, as seen in Typhoon Odette in 2021.
“The office is transforming from a place you ‘need to go’ to a place you ‘want to go’. This has important implications on how organizations will be selecting their new office spaces, implementing return-to-office programs, and reconfiguring their workplaces. Occupiers are not just looking for strategically located and cost-effective real estate, but also quality options that appeal to their employees,” McGilvray said.
Meanwhile, Santos Knight Frank anticipates more companies the follow the five real estate investment trusts that were already established in the Philippines.
The firm expects the next wave of REITs to include not just traditional assets such as offices, but also non-traditional income-generating assets such as infrastructure, energy, data centers and parking spaces.
“The question after a successful IPO is how they can sustain and increase their value as a REIT. Strategies such as asset acquisition and retaining excellent property managers for both lease management and upkeep have been used by REITs in other markets, and we see these being adopted by Philippine REITs soon,” said Santos Knight Frank director and head of investment and capital markets Kash Salvador.
Santos Knight Frank expects that as borders re-open, pent-up demand from foreign investors will increase real estate activities in the Philippines in 2022.
Meanwhile, the industrial and logistics sector continues to enjoy new-found boom despite the undersupply of available high-quality facilities, it said. With much of supply around Metro Manila concentrated in Calabarzon, Santos Knight Frank expects real estate players to focus on industrial and logistics developments in underserved areas with good accessibility and infrastructure such as North Luzon.
The average prime warehouse rent in Manila remained relatively stable at P235 per sq. m. a month in the second half of 2021, according to Santos Knight Frank. Lease rates are expected to increase over the next 12 months.
Across Asia Pacific, Manila has one of the lowest average prime warehouse rents—an advantage that keeps operating costs down and supports faster expansion.