Philippine office market shows resilience in first half of 2024

The Philippine office market displayed resilience and growth in the first half of 2024, according to Leechiu Property Consultants, Inc. (LPC). Transactions increased 24 percent compared to the same period last year, driven by the IT-BPM sector and government agencies.

"Net office demand in the first half of 2024 surged 56 percent," said LPC director Mikko Barranda. "However, the sector remains under pressure due to new supply entering the market in the second half of 2024."

Barranda noted a "flight to quality" trend, with traditional offices relocating and expanding to newer spaces. "Live demand gives us optimism, as we see numerous transactions still in the pipeline for the second half of 2024," he said.

The office market's strong performance was fueled by two key sectors: IT-BPM, experiencing a 13 percent year-over-year jump in transactions, and government agencies, whose leasing activity increased by over sevenfold from the first half of 2023 to the first half of 2024.

Overall transaction activity for the first half of 2024 included 268,000 square meters (sqm) for IT-BPM offices, followed by traditional offices (229,000 sqm), government offices (113,000 sqm), and Philippine Offshore Gaming Operators (POGOs) (75,000 sqm). Notably, most occupiers gravitated towards newer buildings (five years old or less).

Key locations

Metro Manila continues to be a preferred location for office space. In the second quarter of 2024, the Bay Area and Makati City captured a combined total of 155,000 sqm, representing a significant 44 percent share of national demand. Notably, government activity fueled 68 percent of the demand in the Bay Area. Outside the capital region, Cebu maintained its position as the provincial leader.

A total of 453,000 sqm of live demand was recorded in the second quarter of 2024 pipeline. Metro Manila accounted for 298,000 sqm, with the remaining 155,000 sqm coming from provincial areas. In Metro Manila, traditional offices led demand (51 percent), followed by the IT-BPM sector (41 percent) and POGOs (8 percent).

Provincially, the IT-BPM sector dominated demand (85 percent), with traditional offices making up the remaining 15 percent. Notably, 46 percent of the total demand (207,000 sqm) were new requirements recorded in the last three months.

Contractions decreased by 42 percent from the first quarter to the second quarter of 2024, reaching the lowest level since 2022. Relocation, downsizing, and consolidation were the primary reasons for space being vacated. Only 24 percent of vacated spaces were pre-terminated by existing tenants.

The Philippines anticipates an increase in office space supply, with an expected addition of 786,000 sqm by the second half of 2024. A majority of the upcoming buildings are in Metro Manila (projected rise of 516,000 sqm), while provinces have 270,000 sqm in the pipeline. However, starting in 2025, there will be a sharp decline in office supply, potentially decreasing by up to 50 percent annually.

Residential market

Meanwhile, the Metro Manila residential condominium market climbed back up in sales and launches for the second quarter of 2024, reversing the downward trend of the previous three quarters. Geographic expansion continued as buyers explored housing options outside the capital region.

Metro Manila residential condominium sales went up by 6.5 percent in the second quarter, while launches increased by 30 percent with six new projects.

Data from the Bangko Sentral ng Pilipinas (BSP) showed a slight decline in residential real estate loans (RRELs) granted for new housing units in the first quarter of 2024.

New loans granted within Metro Manila declined by 31 percent, while those granted outside Metro Manila increased by 2 percent. Loans for single detached houses remained the highest (43 percent).