Friday, March 1, 2024

Charting a stronger course: Metro Manila office to steer clear of 20% vacancy

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Colliers continues to note deals from traditional and outsourcing firms implementing a mix of flight-to-quality and flight-to-cost measures

Leading diversified professional services and investment management company Colliers (NASDAQ, TSX: CIGI) said in a recently held market briefing that the Metro Manila office market performed better than expected compared to initial projections. “In 2023, net take-up has more than doubled compared to the previous year as transactions continue to outpace lease surrenders. Despite new supply driving its marginal increase, vacancy posted as of end-2023 has averted the 20-percent level and is forecasted to stay within the sub- 20% level in 2024,” said Kevin Jara, Colliers Director of Office Services – Tenant Representation. Colliers continues to note deals from traditional and outsourcing firms implementing a mix of flight-to-quality and flight-to-cost measures. The office market has also seen more expansions (50% of total transactions) and new entrants (10% of total transactions) in 2023. Navigating the sub-20% vacancy landscape

As of end-2023, Metro Manila office vacancy reached 19.3%, marginally higher than the 18.7% recorded in Q3 2023, driven by completion of new office buildings and lease surrenders from non-renewals and pre-terminations. Despite this increase, the posted year-end vacancy remains lower than our initial projection of 21.2%. “In 2024, vacancy is expected to reach 19.6% as we project stronger demand for office space despite low pre-commitment levels in upcoming properties and expected surrenders from pre- pandemic leases. Assuming sustained demand from key office market drivers (i.e., traditional and BPO companies), Colliers expects that the office vacancy will remain in the two-digit territory for the next five years and projects a 14.3% vacancy by end-2028,” said Jara. Net take-up exceeds forecast, to increase by 20% in 2024

Given demand continuing to outpace surrenders, net take-up or absorption reached 279,800 square meters in 2023, higher than our initial forecast of a 220,000 square meters net take-up and the 110,500 square meters recorded in 2022. “Colliers is optimistic that net absorption will sustain its momentum in 2024 as we continue to receive inquiries for new setups, expansions, and relocations within the capital region,” said Vida Samaco, Colliers Senior Manager of Office Services – Tenant Representation. “In 2024, we project net absorption to reach 336,000 square meters, with the 20% increase based on pre-pandemic, pre-POGO average annual growth rate.”

Occupiers exercise flight-to-value strategy

With the prevailing tenant-leaning market, existing occupiers continue to secure new and high- quality office spaces in primary CBDs at lower rents, as evidenced by the rollout of their expansion and relocation plans. Based on Colliers’ data, 40% of transactions with known motivations were relocations and out of these relocations, 60% have implemented flight-to- quality/value (i.e., relocations to newer, higher-grade buildings). Traditional, shared services, and third-party outsourcing companies were seen implementing this strategy in Fort Bonifacio, Makati CBD, and Ortigas CBD. Colliers encourages tenants planning to expand or relocate their operations to take advantage of newly completed office buildings in business hubs that offer rental discounts. To capture future demand, landlords with presence in better performing submarkets may consider redevelopment of aging properties and/or building more quality and green spaces, given that sustainability is now a minimum requirement for occupiers in securing spaces.

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