The vacancy rate for Metro Manila’s office sector widened to 21.5 percent in the first quarter with the completion of new buildings, real estate service provider KMC Savills said Tuesday.
KMC Savills said in a report on the domestic office market that more than 69,000 square meters of office space were completed in the first quarter, resulting in higher vacancy rate and a 0.9-percent decline in average rent for office spaces in Metro Manila.
It said that aside from the decline in rents, office landlords also started offering massive discounts from their headline rates to attract large and valuable tenants.
“Landlords are starting to become aggressive in their pricing, and we should expect this to be the norm as occupiers race for quality amidst broader options,” KMC Savills said.
Makati and Bonifacio Global City remained the preferred sites among tenants, although Ortigas Center is also attracting large occupiers because of its affordability and quality stock.
“The added competition may cap any rental growth which could be exacerbated if landlords in Makati CBD further drop rents to remain competitive. As such, landlords in BGC should keep concessions open to secure occupancies,” KMC Savills said.
KMC Savills also reported that information technology and business process outsourcing firms continued to transfer their registration to the Board of Investments from the Philippine Economic Zone Authority.
It said that by transferring their registration to BOI, the IT-BPO firms would be allowed to adopt 100-percent work-from-home arrangement without losing their tax incentives.
The transferees, however, are still required to maintain an office inside a PEZA-registered building/ecozone.
“This has broken the monopoly of PEZA-certified buildings on the outsourcing sector during a time when companies implement successful hybrid and work-from-home policies,” KMC Savills said.
The hybrid work trend already translated into office downsizing and consolidation towards quality, it said.
JLL Philippine said in a separate report BPO firms continued to drive office leasing volumes, but their registration transfer to the BOI had tempered demand for office space.
“Occupiers have gained their footing and settled post-pandemic, and now have a clearer view on their short- to medium-term strategy in terms of office space requirements,” said JLL Philippines head of research and strategic consulting Janlo de los Reyes.
Leasing volumes rose 39 percent from the fourth quarter, driven by activities from the BPO segment, accounting for 67.1 percent of total Metro Manila transactions recorded in the first quarter, it said.
The property consultation firm said the office market may see leasing volumes moderate in the subsequent quarters as the market normalizes. This may be tempered by remote work arrangements employed by select BPOs who shifted from the Philippine Economic Zone Authority to the BOI.
Rightsizing or released spaces remained persistent, totaling about 126,000 square meters in the first quarter.
“We may see this downsizing among BPOs who transferred their registration to the BOI accelerate in the remaining quarters of the year as they rightsize their footprint to fit their operations,” said JLL Philippines research manager Karisse Garcia.