Office space demand reaches over 1 million square meters

Office space demand in the Philippines expanded 8% in 2023 to 1.07 million square meters (sq. m.) driven by the sustained expansion of the business process outsourcing (BPO) industry, according to Leechiu Property Consultants (LPC).

"The BPO sector remained the primary driver of demand for office leasing despite the current hybrid setup," said Mikko Barranda, LPC director for commercial leasing.

BPO firms accounted for 450,000 sq. m. of demand as they continued to expand operations and hire more employees.

While demand from Philippine offshore gaming operators (POGOs) remained positive, it has significantly decreased compared to previous years. POGOs accounted for 185,000 sq. m. of demand in 2023, mostly located in the Manila Bay Area cities of Paranaque and Pasay. This represents only 17% of total demand, compared to its peak in 2018 and 2019.

"There's a pick-up in demand from traditional offices, with deals averaging 500 to 1,000 sq. m. This means that there are new companies coming in the market," Barranda added.

LPC expects strong office space demand to continue in 2024, with 520,000 sq. m. of current live requirements expected to extend into the first half. As demand increases, vacancy levels are expected to decelerate starting next year. Office vacancy currently stands at 18%, totaling 3.3 million sq. m. A total of 418,000 sq. m. of office space were vacated this year.

LPC anticipates an additional 710,000 sq. m. of new office space to be added to the supply by next year. With this increase, vacancy is projected to drop to single-digit levels by 2027 or 2028.

Residential Market Shows Signs of Recovery

In the residential market, LPC noted that 2023 marked the beginning of the recovery of the condominium sector, with sales increasing by 14% and project launches jumping by 66%. Developers are regaining confidence in the market, launching new projects despite the continued fall-out and back-outs of some homebuyers.

Demand drivers for the residential market include strong dollar remittances from overseas Filipino workers, a positive outlook on the domestic economy, the booming BPO sector, and a growing population.

However, LPC cautioned that increasing policy rates, inflation, and geopolitical risks may continue to put pressure on vertical construction costs.