Office space vacancy hit 8 percent across all Metro Manila business districts in the last quarter of 2020, according to a report by real estate consulting firm Lobien Realty Group (LRG).
In the 4th quarter of 2020, supply of office space in Metro Manila totaled 739,312 square meters (sqm), of which 57.59 percent or 425,778.83 sqm. remain leased, with available remaining supply at 313,533.17 sqm.
From an average rent of P1,160/sqm in February 2020, the current value has gone down 3 percent to P1,120/sqm. A bigger drop in rental rates brought about by the exit of Philippine Offshore Gamings Operators (POGOs) was kept at bay due to the 1-year advance rent and deposit requirement.
Renegotiated rental rates
LRG expects renegotiated rental rates to remain at current levels or at by at least 10 percent. Highly affected will be the cities of Makati, Taguig, and Bay Area, which have had the highest asking rates for the past 3 years. The Grade A buildings in these CBDs have already shown an 8 percent to 11 percent decrease from their rental rates for the same period in 2020.
The 3 major factors that affected rental rates in Metro Manila CBDs include closure of offices of many tenants, led by POGOs who exited the country in droves; the postponement of new and current companies’ start of operations and expansion plans; and the work from home arrangements that has effectively reduced the need for office space.
Patience is a virtue
LRG’s CEO Sheila Lobien noted office property owners in CBDs have learned not to force the issue and be patient with the current situation while most have slowed down some planned construction in anticipation of high vacancy rates and lower rental rates.
Building owners have also become more flexible in their rental expectations and were actually giving rental discounts of as much as 20 percent to existing tenants and/or offering lower rents to new ones compared to pre-pandemic rates. Many were also offering office spaces fitted with furniture which were left in good condition by the previous tenants.
LRG advised prospective tenants to start scouting for their preferred CBD, buildings, and office cuts to maximize the current situation.
Despite the slowdown in office space take up due to the pandemic, commercial property values in the CBDs have remained almost the same because of the low and finite supply of land in these locations.
No significant decline in land values
Generally, LRG has not observed any significant decline in land values in CBDs due to the pandemic. Makati and Taguig’s selling price ranges from P400,000 to P1 million/sqm; Pasig at P80,000 to P350,000; Mandaluyong, P120,000 to P230,000; Quezon City,
P170,000 to P230,000; Alabang P250,000 to P400,000; and Bay City, 300,000 to P500,000.
Most of the landowners are also expected to comfortably survive the pandemic because of the robustness of their companies and the possibility that they have secure cash positions.
The Bayanihan Law has also given assistance to many landowners. Moreover, property owners also expect this pandemic to be temporary. Lobien says that when vaccines are available and the economy recovers, capital values will be back to where they were pre-pandemic.