Manila records 9,200sqm office absorption in Q1 as occupiers continue to downsize

One firm released 10,000sqm in Taguig City.

Absorption in Manila’s office market cooled further to about 9,200 sqm, and JLL says this was driven by continued rightsizing of occupiers as economic headwinds heated up and the effects of structural changes started to materialise. 

“BPOs released spaces, such as an IT-centred firm releasing 10,000 sqm in Taguig City, and a pharmaceutical-centred BPO downsizing by 1,300 sqm as they transfer their registration to the Board of Investments,” JLL said.

Here’s more from JLL:

Traditional players continued to buoy the market as BPO activities started slowing, specifically in Makati and Taguig City. Notable transactions from the industry included a 4,700 sqm lease by a government office in Makati City, and a consulting firm that took up 1,150 sqm in Taguig City. BPO activities continued to be a mixed bag, with select firms expanding and others downsizing operations.

Completions of two developments adds new leasable spaces

The completions of Makati Commerce Tower and Stiles Enterprise East Tower in Makati City added about 90,000 sqm of new leasable spaces to the market in 1Q23. In the remainder of the year, an anticipated introduction of around 273,400 sqm may further challenge the recovery of vacancy levels amid a weaker market.

Sustained space rationalisation among BPOs and corporate occupiers, coupled with fresh supply which went online with a large volume of vacant spaces, led to the expansion of vacancy levels which settled at 13.5% in 1Q23, up by 145.3 bps q-o-q. We may see vacancy further elevate in the near term largely due to supply pressures. 

Market and economic uncertainties dampen rents and prices

Rents continued to dip and ended at PHP 1,116.3 per sqm per month, a contraction of 0.8% q-o-q, on the back of a lacklustre office market. The majority of landlords continued to retain rentals despite higher operating costs, while select developments reduced rates to spur demand for long-vacated spaces. 

Capital values continued to hike and settled at PHP 182,236 per sqm, expanding by 0.9% q-o-q. Despite the sustained upticks, hikes were not as steep as previous levels, with escalating interest rates weighing down on investor sentiments.

Outlook: Leasing volumes may stay lean, challenging vacancy and rents

Market activities are anticipated to remain cool in the near term where we may see the full effect of half of 1,000 BPO-locators transferring their registration to the Board of Investments to avail of the flexibility in work arrangements. Despite this, we may still see activities from BPOs as they achieve the industry target of USD 59 billion in revenue, and an additional 1.1 million jobs by 2028.

The majority of landlords are expected to retain their rents in the near term to further buoy demand. Select landlords with healthy occupancy levels have been seen to hike up rentals incrementally, potentially raising the market average minimally. Capital values, on the other hand, are expected to record less aggressive upticks on the back of elevated interest rates.

Note: Manila Office refers to the Makati City and Taguig City Grade A office market.