Persistent Elevated Office Vacancy Rates in Metro Manila

Metro Manila’s office market is experiencing a slow recovery, with elevated vacancy rates persisting due to the continued prevalence of hybrid and remote work schemes. This trend, detailed by real estate services firm Cushman & Wakefield, highlights the shifting dynamics in the office space market post-pandemic.

Overview of Current Market Conditions

1. Vacancy Rates and Trends: The vacancy rate for Grade A and prime offices in Metro Manila increased to 16.83% by the end of the third quarter from 16.12% in the same period last year. Although there was a marginal quarter-on-quarter decrease from 16.9%, the overall rate remains high. The adoption of remote work schemes, especially among IT and business process management (IT-BPM) companies, is a significant contributing factor​​.
2. Office Space Absorption: The third quarter saw positive absorption figures of approximately 38,000 square meters, attributed to some companies relocating or consolidating their office spaces. This absorption has somewhat mitigated the rise in vacancy rates, but the overall effect remains limited​​.
3. Rental Price Adjustments: Landlords in the region have been cautious with rent adjustments. The average asking rent increased only marginally by 0.15% year-on-year to P1,042.17 per square meter per month. Most landlords are keeping rents steady, with many noting negotiability in their pricing​​.

Factors Influencing the Market

1. Pandemic and Hybrid Work Models: The pandemic-induced remote work arrangements have had a lasting impact. Even with the easing of restrictions, many companies continue to employ hybrid and remote work models, directly affecting the demand for physical office spaces​​.
2. Legislative Changes and IT-BPM Sector: The impending CREATE MORE bill, which includes provisions for IT-BPM firms to implement remote work schemes while retaining tax incentives, is expected to further influence the office space market. This legislation could perpetuate the trend of reduced physical office requirements​​.
3. Market Divergence Post-Pandemic: The recovery of the office market is expected to take a divergent trend after the pandemic. While high-quality developments in central business districts (CBDs) might see increased demand, lower-quality buildings, especially those outside major CBDs, could face challenges. This divergence is anticipated due to the evolving demands of corporate occupiers for flexible, high-quality office spaces that align with hybrid work arrangements​​.
4. Economic and Geopolitical Factors: Elevated inflation, high interest rates, and geopolitical conflicts may further complicate the market’s recovery. These factors, along with the early exit of Philippine offshore gaming operations (POGO) companies, are affecting the growth expectations for office space demand. The Philippine real estate investment trust (REIT) market expansion is also challenged by these economic headwinds