Manila’s office vacancy rate hits 12-year highs in Q1

Vacancy rate reached 9.8% in Q1, the highest since 2009.

Net absorption in 1Q21 was recorded at -113,800 sqm according to JLL, a drastic decline y-o-y from the 85,800 sqm recorded in 1Q20; mostly due to move-outs and downsizing from POGOs (Philippine Offshore Gaming Operators) and O&O (offshoring and outsourcing) tenants, ranging from 1,000 sqm to 24,000 sqm.

Major lease transactions observed during the quarter included new lettings, expansions, and renewals from O&O firms and traditional occupiers. JLL reveals notable leases included two O&O firms renewed around 2,000 sqm of office space in BGC and McKinley Hill, logistics firm occupied 3,200 sqm in Bonifacio Global City (BGC), and a government agency expanded to 3,000 sqm in Makati CBD.

Here’s more from JLL:

The vacancy rate rose to 9.8% in 1Q21, up by 266 bps q-o-q; the highest recorded since 4Q09 during the Global Financial Crisis, which registered a rate of 10.4%. Average vacancy continued to climb as tenant move-outs overtook take-ups.

No completions observed in 1Q21. Developments originally scheduled in 1Q21, namely Alveo Financial Tower and Manta Corporate Plaza were moved to 2Q22 and 4Q21, respectively. Upcoming supply additions for 2021 are scheduled on 4Q21.

Rents see a dip, while capital values marginally rise

Average rent slipped by 0.3% q-o-q to PHP 1,123 per sqm per month in 1Q21, as some landlords of older developments lowered asking rents. Most landlords retained rents, but are open to flexible lease and renewal terms due to elevated vacancies.

Average capital value inched by 0.2% q-o-q to PHP 171,417 per sqm in 1Q21, attributed to re-opened and re-sale units in the secondary market (e.g. Alveo Financial Tower).

Outlook: Office vacancy to remain elevated amid sluggish demand

Average vacancy rate may remain high as tenants continue to hold off expansion plans, which may lead to muted rental growth.

Last March 2021, the Corporate Recovery and Tax Incentives for Enterprises (CREATE) act was signed into law, aiming to attract new investments and locators. It seeks to lower corporate income tax from 30% to 25%, and to modernise fiscal incentives for foreign and domestic enterprises.

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