Property consultant KMC Savills Inc. on Wednesday said even if there is a commendable rebound in office net absorption last year, there will remain notable vacancies in office spaces in Metro Manila through 2025.
Frederick Rara, the company’s senior manager for research and consultancy, said developers cannot expect the occupancy rate to return to above 85 percent of office stock during the next two to three years.
He did acknowledge the top submarkets could possibly avert a prolonged office supply glut, but the Makati central business district and Ortigas Center still remain at risk if office demand from the business process outsourcing sector continue to favor and gather even more steam for the provincial markets.
“We maintain our recommendation to landlords to prioritize occupancy over yields in 2023,” Rare said.
Last year, the Metro Manila office market rebounded with net absorption of about 270,900 square meters, a reversal from a negative take up the previous year.
More than a third of the demand was reported in the fourth quarter as rents continue to fall that at the end of the year was down by 0.8 percent.
Demand from Bonifacio Global City accounted for more than half of annual demand at 141,000 square meters and seen the main driver of Metro Manila’s performance this year.
“We forecast net absorption to slightly increase in 2023, but (this) may be isolated in the top submarkets” such as the Makati CBD, Ortigas Center, Quezon City and Bay Area in Manila, KMC said.
Clearly, there is an office supply glut in Metro Manila.
“With almost 1.7 million square meters of vacant Grade A office space, another 1.2 million square meters in the pipeline, changing occupier strategies and rising interest rates, the office market is in an unsustainable condition at these rates,” KMC said in its research note.
For Makati, there is huge demand for One Ayala buildings, located at the former site of the Intercontinental Hotel, with the vacancy rate pulled higher to 15.7 percent.
“Along Ayala Avenue, the competition between premium buildings persists as landlords try to outplay each other with better incentives. However, newer buildings are at an advantage as tenant demand shifts towards quality and competitive rates,” KMC said.
It, however, noted that average rent rates slid 3.4 percent year-on-year as the aging building stock dragged the sub-market.
Meanwhile in BGC, the preference for the location has aided landlords to enjoy vacancy rates in single digits.
“We remain positive in our outlook for BGC as it dominates Metro Manila (office sector). Around 160,000 square meters of green buildings are expected to be completed in 2024, or more than two-thirds of the supply,” KMC said.
For the residential market, the middle market products that are due to be turned over this year and 2024 should be closely monitored as there is risk of default among buyers.
It also advised investors to put their money instead in bonds rather than the residential market as the sector is likely through next year.
