Demand for office space recovers strongly in second quarter

Demand for office demand reached the highest quarterly level in the second quarter of 2022, according to Leechiu Property Consultants (LPC).

In its June 2022 report, LPC said office space demand was estimated as 255,000 square meters, the highest among all the quarters since the start of the pandemic in 2020.

Data show that office take-up jumped 106 percent from 124,000 sqm in the first quarter. LPC director for commercial leasing Mikko Barranda said this indicated a stronger growth momentum.

Leasing transactions in the first half reached 379,000, representing 70 percent of 2021’s full year take-up.

Barranda said the rising demand was led by IT-Business Process Management firms which accounted for 107,000. Philippine Offshore Gaming Operators (POGOs) cornered 21,000 sqm., the first sign of leasing activity from the industry since March 2020. “This can best be interpreted as tentative steps for now,” said Barranda.

“All the leasing activity in the past three months – from many new captives and companies doing business here for the first time-- tell us outsourcing to the Philippines continues to be a reliable solution for companies in the West fighting impending global recession,” he said.

LPC said year-to-date live requirements reached 451,000 sqm of projects in various stages of completion as of June, with IT-BPM firms accounting for 212,000 sqm of the total.

Office vacancy rate reached 18 percent in Metro Manila, with BGC and Makati registering manageable vacancies of 12 percent and 14 percent respectively.

Capital values and interest in key business districts exceeded pre-pandemic levels with transactions in BGC and Filinvest City hitting new record highs, according to the LPC study.

Alvin Magat, LPC director for investment sales said Filinvest City displayed the highest growth rate among Metro Manila business districts with a CAGR of 20 percent over a six-year period.

Core CBD capital values held strongly in the last five years with CAGR of 9 percent to 20 percent.

LPC director for investment sales Tam Angel said with the economy forecasted to grow up to 8 percent and inflation forecasted at 5percent this year, investors are taking a position as the economy opens us to be able to ride the projected post-pandemic increase in land values.

Residential condominium sales climbed 54 percent from Q1 to Q2, according to Roy Golez, director for research and consultancy.

Demand for most segments posted significant growth as developers offered extended and flexible payment terms and investors purchased residential units to lock in current prices.

The lower middle segment bucked the trend dropping by 89 percent, as buyers at that level opted to prioritize purchasing necessities over the security of owning a home. New launches slowed down by 78 percent given uncertainties like increasing interest rates, inflation and construction materials procurement issues due to lockdowns in source countries.

Lot prices in Southern Mega Manila have been steadily growing at 7 percent to 15 percent annually. Among the biggest gainers have been properties at Rockwell South which launched in 2019 at P35,000/sqm. and have since shot up by 52 percent to P53,1000/sqm.

The Philippine real estate continues to be a growth story supported by healthy capital values, avid residential investors, and an office market firmly supported by the IT-BPM sector.

“As the economy opens up, we are confident that transactions – especially in the office sector-- will pick up driven by firms that will use outsourcing in tough times. The IT-BPM sector is the unique Philippine industry that does well when everyone else in the world is challenged to remain viable,” said Barranda.