Real estate service provider Cushman and Wakefield Inc. said a return to pre-pandemic demand for office space in the Philippines and around the world remains distant as interest rates will likely remain elevated.
Claro Cordero, company director and head of research, said demand for more outsourcing activities will stimulate occupier demand, albeit at a slower pace, that should improve overall market vacancy rates in established central business districts.
“The current confusion on the new legislation allowing remote work schemes must be clarified as this will further stall expansion decisions of IT-BPM companies. These future growth plans will stimulate office space absorption in the local market,” Cordero said.
According to him, “the demand for sustainable construction practices and property management is taking shape as large corporate occupiers simultaneously chart their long-term real estate strategies. The demand for high-quality developments will further highlight the demand for highly-flexible building systems and sustainable property management practices as effective ways to ensure healthy occupier demand while future-proofing commercial real estate developments.”
The company said the office real estate market in Metro Manila remains in recovery phase.
While the majority of landlords in Metro Manila are keeping their headline rent steady, some had posted slightly lower rents in the fourth quarter last year, bringing the average asking rent down by 1.8 percent to P1,023 a square meter a month from reported rent of P1,042 a square meter each month as a result of high vacancies prevailing in the market.
“Overall vacancies of prime office spaces closed at 16.3 percent in the fourth quarter, a marginal decrease from the previous quarter’s rent of 16.8 percent. With the large volume of office space expected to be completed in the first half of 2024, as well as the proposed amendments to legislation that will allow for the IT-BPM sector to operate on a more flexible work-arrangement, vacancies are projected to increase,” the company said.
Cordero said large-scale investment transactions may also take time to fully-recover as price expectations remain elevated as the effects of high interest rates remain sticky.
“Office vacancy in the Manila market will continue to breach historical high levels due to the balance of new completions in the short- to medium-term, as well as the continuous right-sizing initiatives of most global occupiers,” he said.
He said the outlook remains for office vacancy figures are to improve as delayed transactions in 2023 are projected to come up online this year.
