Office space vacancy starts to decline—Colliers

Colliers International Philippines expects higher net take-up of office space by the fourth quarter of 2023, increasing to 220,000 square meters (sqm), as office vacancies have started to decline, albeit marginally, in the  first half (H1) of 2023.

In its first semester office report, Colliers noted improved transactions and slowdown in non-renewals, but uneven recovery in rents is still being experienced across Metro Manila submarkets, with rental recovery noted in Makati central business district (CBD), Fort Bonifacio and Ortigas CBD.

“Elevated vacancy is still expected due to more supply coming online in the latter part of the year. Colliers believes that landlords and tenants should continue seizing opportunities given the current tenant-leaning market,” the report said, adding that delivery of new buildings is likely to raise vacancy to 21.2 percent by end-2023.

Net absorption for the second quarter has improved, mainly driven by higher transactions volume coupled with the slowdown in vacated spaces.

Occupiers may consider implementing flight-to-value or incorporate flexible workspace in their real estate strategies. With the increased interest in environmental, social and governance (ESG) and diversity, equity and inclusion (DEI) initiatives, landlords can work with tenants on office renovations and include these corporate initiatives within building amenities and common areas, Colliers said.

The report highlighted that net take-up in the second quarter (Q2) of 2023 reached 93,900 sqm, more than triple the 28,900 sqm posted in the first quarter. In Q2 2023, Colliers recorded the delivery of 80,400 sqm of new office space. By end-2023, the advisory company expect the completion of 668,400 sqm, with Ortigas CBD and Fort Bonifacio covering nearly half of the new supply.

Meanwhile, 402,000 sqm in the pipeline were put on hold or shelved by developers as of H1 2023, higher than the 166,000 sqm in Q1 2023.

“In our view, these projects may be redeveloped or reactivated by developers in the future. From 2023 to 2025, Colliers sees the completion of 492,400 sqm annually. This is only half of the 1 million sqm completed annually from 2017 to 2019, a period wherein completion was positively influenced by the POGO sector,” the company said.

Traditional firms including government agencies, telcos, insurance firms, and flexible workspace operators logged transactions of 125,700 sqm in H1 2023. In Q2 2023, outsourcing firms dominated transactions with 73,000 sqm of closed deals.

Colliers observed that most outsourcing firms are still actively expanding and are employing flight-to-value strategies despite hybrid work arrangements, transferring to new, high-quality towers in Makati CBD, Fort Bonifacio, and Ortigas Center.

However, business districts with substantial supply coming online for the remainder of 2023 as well as those with double digit vacancies are likely to experience further decline in rents. By end-2023, Colliers projects lease rates to drop by another 5 percent after correcting by 8 percent in 2022.

Colliers engaged occupiers to facilitate continuous dialogue with their stakeholders to determine how best they work and what can attract more talent to the organization. Occupiers continue to see the office as critical to employee engagement, especially for new hires.

Colliers has observed that more firms are using the office as a recruitment tool and training floor, as it now becomes a company’s platform to encourage people to come together.

The firm noted that one of the major employee concerns on return-to-office (RTO) is the cost of moving back to their Metro Manila head offices. Implementing full RTO increases the risk of employee attrition, which can be costly for companies. To address this, opening sites in provincial areas may be a viable strategy to address the RTO-work from home (WFH) gap.