Office market sees 11% growth in first three quarters of 2024

Office demand in the third quarter of 2024 decreased 16% compared with the same period last year. However, year-to-date demand for office space reached 900,000 square meters, an 11% increase over the first three quarters of 2023, according to Leechiu Property Consultants, Inc.

While office demand dropped to 215,000 square meters in the third quarter, the year-to-date total remains strong, with an 11% rise compared with the same period in 2023. The IT-BPM industry and traditional office sectors were key drivers of this momentum. Government agencies also played a substantial role, contributing 119,000 square meters of space demand. Given this, we are confident that we are on track to meet or even surpass last year’s leasing figures of 1 million square meters.

In previous quarters, tenants typically moved laterally to higher-quality buildings while maintaining similar space requirements. However, we are now witnessing a shift, with tenants opting for both better and larger spaces. A significant portion of year-to-date office leasing activity comes from existing tenants expanding their office spaces, particularly in buildings that are 5 to 10 years old. Additionally, we have observed new companies from the United States and other foreign countries exploring offshoring opportunities in the Philippines.

Metro Manila continues to lead in-office transactions, with the Bay Area taking the lead in market share of office demand in the capital, driven primarily by government agencies occupying 80,000 square meters in the first nine months of the year. Outside the capital, Cebu remains the dominant provincial market, supported by demand from the IT-BPM sector.

“Live demand saw a substantial 27% increase this quarter, rising from 457,000 square meters in the previous period to 581,000 square meters. This sharp growth indicates a significant surge in market activity and interest, reinforcing our confidence in a strong finish for the year. The momentum we’re witnessing also offers an encouraging preview of 2025, as we anticipate continued demand and steady growth in the market,” said Mikko Barranda, director of commercial leasing at Leechiu Property Consultants.

The IT-BPM sector accounts for 55% of this ongoing demand, with 319,000 square meters of live accounts, while traditional office tenants make up the remaining 45%. In Metro Manila, Makati and Bonifacio Global City (BGC) are the top choices for office space, while outside the metro, Davao, Cebu, and Batangas are the prime locations for office leasing.

Contraction activities increased 21% in the third quarter of 2024 compared with the same quarter last year, largely due to traditional office tenants and the IT-BPM sector vacating older spaces for newer, higher-quality buildings. Meanwhile, the POGO industry continues to downsize, contributing to the increase in vacated office space.

Vacancy this quarter remains at 17%, largely due to new building completions adding 66,000 square meters and contractions totaling 147,000 square meters. However, it can be anticipated that vacancy rates will start to decline from this point as the upcoming pipeline of buildings is expected to be completed by 2025. Despite these changes, the total office vacancy rate in the Philippines remains steady at 17%, equating to 3.1 million square meters of vacant office space.

Makati and BGC continue to command the highest transacted office rental rates in the country. While rental prices have generally remained stable in most districts, areas with lower vacancy levels have experienced slight increases in rental rates.

The Philippine office market continues to show resilience, with sustained demand and stable rental rates despite external challenges. The market is poised for further growth as developers and tenants adapt to evolving market conditions.