THE initial effects of the ban on the Philippine offshore gaming operators (POGOs) and the implementation of the Create More bill that supports flexible work arrangements have led to elevated vacancy rates in the National Capital Region office market, slowing down its expected recovery during the third quarter of 2024. Another factor was the addition of 114,000 square meters of office space to the market.
This was highlighted in the 2024 Q3 report of real estate services firm Cushman & Wakefield, which also stated that the average vacancy rate reached 18.2 percent, their highest estimated level since Q2 2004.
According to Tet Castro, director and head of tenant advisory group at Cushman & Wakefield, “The Metro Manila office market is exhibiting a slower-than-expected recovery in Q3 2024. Overall vacancy rates have steadily increased, and average headline rents have marginally declined again this quarter, making the market more favorable for tenants.”
Claro Cordero, Cushman & Wakefield director and head of Research, Consulting & Advisory Services, named the NCR locations with elevated vacancy rates: Pasay City, a rise of over 690 bps QoQ because of its high concentration of POGO companies; Taguig City (590 bps QoQ increase); and Makati City (180 bps QoQ increase) because of their new completions with low pre-commitment levels.
He said that in contrast “vacancy rates in office developments near the borders of Metro Manila, such as Muntinlupa City, Parañaque City and Quezon City, remained relatively stable, with changes below 50 bps QoQ.”
Another game-changer that can reduce the demand growth for office spaces in the IT-BPM sector is the rising use of artificial intelligence advancements (AI) such as virtual assistants, chatbots and automated customer service interfaces, which can replace human workers. Cordero points out that it is imperative that “industry stakeholders develop policies and programs that equip and upskill workers. … AI still requires human intervention for data analytics and managing more complex customer service issues.” Navigating these evolving demands can “ensure “steady industry growth and continued demand for office spaces in the long term.”
According to the report, average asking rents for Prime and Grade A office spaces have experienced a slight decrease in Q3 2024, marking the fourth straight quarter of consistent decline. The average headline rent of Prime and Grade “A” developments in Metro Manila closed at P1,003/sqm/month, a 67-bps decrease from the reported average of P1,010/sqm/month in the previous quarter and a 363-bps decrease from the average of P1,041/sqm/month in the same quarter the previous year.
Some Prime and Grade A developments in the CBDs are maintaining steady headline rents this quarter. However, significant developers have indicated that these rents are negotiable, with significantly lower rates achievable. Additionally, developments outside the CBDs, affected by the return of office spaces, offer more attractive headline rents, potentially lowering average rents in the short to medium term.
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