The office sector is leading the recovery of the property industry and is picking up the slack of the retail and tourism-related business concerns in the wake of the pandemic.
Leechiu Property Consultants, one of the leading real estate brokerage services companies in the Philippines, says the domestic office market appears ready to take off and resume its pre-pandemic growth trajectory.
LPC in a recent report noted that 330,00 square meters of active office leasing requirements that are up for transaction in 2021.
Including the 291,000 sq. m. of office demand in the first half of the year, the full-year 2021 demand will hit close to 600,000 sq. m. or 54 percent higher than 2020 level.
“As of first half 2021, it is now at 291,000 square meters. This is already 75 percent of demand for the entire 2020. There is no doubt that the Philippines is back on the radar of global occupiers,” says LPC chief executive David Leechiu.
The business process outsourcing sector is still the main driver for the office sector with 44 percent of the demand in the first half of the year.
“The economic stability in the West and the sustained rollout of the vaccines in the Philippines have prompted their return. They will be on expansion mode up to year-end,” says LPC director Mikko Barranda.
Demand from traditional companies like those in e-commerce and logistics sectors are expected to boost office demand.
Another bright spot in the office sector is the renewed interest of Philippine offshore gaming operators in the country. LPC has been receiving several inquiries from online gaming operators for possible office lease by the last quarter of the year.
“The POGOs are coming back and I am not talking about 500 to 1,000 square meters of office space but a chunky amount of space,” says Leechiu.
The passage of the proposed Senate Bill 2232, which will clarify the tax concerns of POGOs, as well as the recovery of the domestic economy are factors that could bring back POGOs into the country.
Out of POGOs’ total 1.7 million sq. m. footprint, at least 396,000 sq. m. were vacated from the second quarter of 2020 to the first quarter of 2021 due to imposition of higher taxes.
The POGO contracts of 118,000 sq.m. in the first quarter of the year dropped to 59,000 sq.m. in the second quarter of 2021.
“With the reopening of international borders, POGOs are expected to revive their interest in the Philippine office market and further prime the country’s economic recovery,” says LPC.
But while office demand has started to improve, leading property management and consultancy services firm Colliers Philippines said in a recent report it expects office rents to drop by about 20 percent this year, higher than the 17 percent decrease recorded in 2020.
“We see a slow recovery starting 2022 as we project a pick-up in office leasing across Metro Manila,” Collier said.
Despite mobility restrictions, office completion reached 364,800 sq.m. in the first half of 2021 while another 482,000 sq. m of office spaces are expected to be finished by the second half of the year.
With new office spaces coming on stream, vacancy rates are expected to increase to 15.6 percent this year.
To lure more office tenants, Colliers urged landlords to be quick in securing occupancy by offering concessions such as flexible lease terms, rent-free periods, partial termination options, delayed escalations and fit-out financing.
For tenants, Colliers advised them to be on the lookout for prime grade A office buildings, especially for long term leases which are likely to be bargain in 2021.
Colliers has observed that tenants with upcoming lease expirations are taking a more cautious approach such as shorter flexible leases. BPO firms have also been taking up spaces in multiple sites near the residential communities of their employees.
“Colliers believe that office market recovery will primarily hinge on vaccination progress and the further easing of mobility restrictions,” says the property consultant.
“New office space absorption continued to be led by outsourcing and traditional firms that implement a mix of rightsizing, consolidation expansion and relocation strategies,” it added.