Vacancy rates seen to rise for Metro Manila’s prime offices

CHRIS ANDERSON-UNSPLASH

VACANCY RATES for prime offices in Metro Manila are projected to rise this year due to the potential increase in flexible work arrangements in the information technology and business process management (IT-BPM) sector, according to global real estate services firm Cushman & Wakefield.

“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,” Cushman & Wakefield Director and Head of Tenant Advisory Group Tetet Castro said in a statement on Monday.

The rules on remote work schemes should be clarified, or there is a risk of affecting office space absorption, said Claro G. Cordero, Jr., Cushman & Wakefield director and head of research.

“The current confusion… will further stall expansion decisions of IT-BPM companies. These future growth plans will stimulate office space absorption in the local market,” he said.

Under the CREATE to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) bill, the IT-BPM sector will be allowed to “conduct business under alternative work arrangements.”

The Justice department issued a legal opinion on Jan. 3 regarding the applicability of tax incentives for registered business enterprises on remote work, saying that IT-BPM companies within economic zones should work onsite to retain their tax perks.

Justice Secretary Jesus Crispin C. Remulla said that Section 309 of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law “requires registered projects under an investment promotion agency (IPA) administering an ecozone or freeport to be exclusively conducted or operated within the geographical boundaries of the zone or freeport.”

Meanwhile, Cushman & Wakefield reported that the vacancy of prime and Grade A office spaces in Metro Manila dipped slightly to 16.3% in the fourth quarter of 2023 from 16.8% in the previous quarter.

It added that the average asking rent declined in the last quarter, with the average asking rent down by 1.8% to P1,023 per square meter (sq.m.) per month, down by 1.5% from the P1,038 per sq.m. in the same period in 2022.

“By end-Q4 2023, over 93,000 sq.m. of office space has been added to the supply bringing the overall stock of Prime and Grade ‘A’ office space in Metro Manila to roughly 9.5 million sq.m.,” the company said.

According to Mr. Cordero, the return of global office space demand to 2019 levels is still far from fruition due to higher inflation rates.

“Despite inflation rates cooling down, global interest rates will remain elevated. As a result, the return to pre-pandemic global demand for office spaces from traditional sources remains distant,” he said.

Cushman & Wakefield said that retail space demand could improve amid rising activity levels and investments from international retailers. However, the demand could be hampered by high prices and interest rates.

“The near-term outlook of the other key drivers of industrial segment, particularly the manufacturing and trade industries, remain challenged amidst unfavorable global business climate whilst overall prospect for growth remains solid to cater to e-commerce supply chain requirements,” Mr. Cordero said.

The real estate services firm also mentioned that demand and capital values in the residential market could improve due to anticipated rate cuts, resilient job market, and strong overseas Filipino remittances. — Revin Mikhael D. Ochave