Metro Manila office space takeup improves

Metro Manila office space deals continue to increase despite concerns of rationalized office space requirements from outsourcing companies implementing hybrid work arrangements, according to a report by BusinessWorld.

Net take-up was positive in 2022, after two consecutive years of negative net absorption, indicating that actual take-up is greater than the amount of office space vacated in the market. New supply in Metro Manila is reverting to pre-POGO levels while demand is still likely to be buoyed by outsourcing companies. Flexible workspaces will likely play a crucial role in tenants’ post-coronavirus disease 2019 (COVID-19) operations.

Colliers sees opportunities especially for flexible workspace operators within and outside Metro Manila. Landlords should also take advantage of healthcare outsourcing firms’ office space requirements particularly those looking for high-quality spaces being offered at a discount. Developers should constantly be in touch with outsourcing firms with requirements outside the capital region.

MONITOR DEMAND FROM HEALTHCARE BPO FIRM

In 2022, we recorded about 23,800 square meters (256,100 square feet) of office transactions from healthcare information management service (HIMS) providers, or 9% of total outsourcing transactions in Metro Manila.

Among firms that expanded and took up new space include R1 RCM in Quezon City and Tenet Healthcare in Fort Bonifacio. In our view, these firms took advantage of the availability of new, high-quality spaces and rental correction, as average rents in Metro Manila have dropped by a combined 37% from 2020 to 2022.

Colliers recommends that landlords actively monitor demand from HIMS that are likely to expand and take up office space within outside Metro Manila.

TAP OPPORTUNITIES OUTSIDE METRO MANILA

In 2022, Colliers recorded 221,100 sq.m. (2.4 million sq.ft.) of provincial transactions, nearly double the 113,100 sq.m. (1.2 million sq.ft.) posted in 2021.

Colliers recommends that developers complete delivery schedules of their projects as we have observed increasing inquiries from outsourcing firms especially in Iloilo, Bacolod, Bulacan, and Laguna.

Meanwhile, we also encourage developers to be on the lookout for potential demand in key cities such as Iligan, Dagupan, Urdaneta, Malolos, General Santos, Tarlac, Cabanatuan and Puerto Princesa as these locations are touted as high potential areas for transformation into “digital cities” by 2025 according to the IT & Business Process Association of the Philippines (IBPAP).

NEW SUPPLY

In 2022, about 750,300 sq.m. (8.1 million sq.ft.) of new office space was completed, lower than our forecast of 783,900 sq.m. (8.4 million sq.ft.) in the third quarter of 2022. Colliers attributed the lower-than-expected completion to developers prioritizing the filling of spaces in their existing buildings and delays in securing permits from local government units (LGUs).

In 2023, we project new supply to reach 641,100 sq.m. (6.9 million sq.ft.), up from our previous estimate of 603,900 sq.m. (6.5 million sq.ft.). Colliers sees Ortigas central business district (CBD) and Quezon City covering about close to half of the new supply during the period.

From 2023 to 2026, we expect new supply to taper off and revert to pre-POGO levels (i.e., 2013-2016 new supply of between 450,000 and 550,000 sq.m. every year) where we see the annual average delivery of 555,000 sq.m. (6.0 million sq.ft.).

TRANSACTIONS UP 43%

As of end-2022, office deals in the capital region reached 603,800 sq.m. (6.5 million sq.ft.), up 43% from the 422,400 sq.m. (4.5 million sq.ft.) of office transactions in 2021.

Per submarket, Fort Bonifacio and Makati CBD posted the largest volume of transactions as occupiers took advantage of the availability of quality buildings and attractive rates. In the fourth quarter of 2022, only 111,200 sq.m. (1.2 million sq.ft.) of office deals were recorded, 34% lower quarter on quarter as most of the transactions were relocations.

Among the notable transactions in the fourth quarter of 2022 include: R1 RCM in Quezon City, ADP Philippines in Makati CBD, PWC in Ortigas CBD and CIMB Bank in Fort Bonifacio.

In December 2022, the Philippine Economic Zone Authority (PEZA) reported that about 786 Information Technology and Business Process Management (IT-BPM) companies have been endorsed to the Board of Investments (BoI) for the paper transfer of registration seeking to enjoy 100% work-from-home (WFH) setup.

Meanwhile, the Fiscal Incentives Review Board (FIRB) has extended the deadline to Jan. 31, 2023, to allow more IT-BPM firms to “adopt flexible work arrangements on a long-term basis without adverse effects on their tax incentives.”

Outsourcing firms dominated deals, covering nearly 70% of total provincial transactions. Among the locations with substantial deals include Cebu, Davao and Pampanga. The IBPAP is also optimistic of the outsourcing sector’s growth in the next six years, expecting the segment to create 1.1 million direct jobs, with the provinces taking up 54% of the additional headcount.