Metro Manila office market expected to recover in 18-24 months

The office real estate market in Metro Manila is projected to achieve full recovery within the next 18 to 24 months, as reported by the real estate services firm Cushman & Wakefield. This optimistic forecast hinges on the pace of occupancy in vacant and newly completed office spaces.

Claro dG. Cordero, Jr., director and head of research, consulting, and advisory services at Cushman & Wakefield, emphasized that while a full recovery is anticipated, several external factors could influence the timeline. “The return to a full recovery trajectory will likely depend on various risks, including the ongoing West Philippine Sea conflict, La Niña weather patterns, persistent inflation, and elevated interest rates,” Cordero noted in an email on September 16.

Despite these challenges, Cordero indicated that improvements in vacancy rates and net absorption within the office real estate sector are expected by the third quarter of 2024. He pointed out that the commercial real estate market in Metro Manila is likely to expand by an additional 100,000 square meters in the coming quarter.

The slower-than-expected recovery of the global economy, exacerbated by rising interest rates and inflation, has created pressures on consumer and business confidence, impacting the demand for office spaces among international companies. However, Cordero suggested that a decrease in local interest rates could enhance demand across key property market segments.

In a significant move, the Bangko Sentral ng Pilipinas (BSP) reduced its policy rate on August 15 for the first time in nearly four years, cutting it by 25 basis points to 6.25%, down from a 17-year high of 6.5%. “This unexpected reduction in key policy rates is likely to foster more positive forward-looking expectations regarding monetary policy,” Cordero stated.

This shift is anticipated to bolster business and investor confidence in the market. Notably, headline inflation decreased to 3.3% in August, down from 4.4% in July, reflecting a slowdown in the growth of food and transport costs. This figure remains within the BSP's target range of 2-4% for the year.

Cushman & Wakefield's earlier report revealed that overall vacancies in Prime and Grade A offices in Metro Manila had fallen to approximately 15.2% by the end of the second quarter, marking a 167 basis point decline from the 16.9% vacancy rate reported during the same period the previous year.