Office space demand highest since 2020

By Randell Tiongson on October 11th, 2022

Philippine office demand registered in Q3 2022 at 313k sqm., the highest level since January 2020 and 240% more Year-On-Year, according to a study by Leechiu Property Consultants (LPC).

YTD 2022 demand is now at 692k sqm. or 27% higher than the FY 2021 figure illustrating the continued resilience of the office segment despite global uncertainties including rising interest rates, inflation and destabilization of the currency.

Office take-up in the first nine months has surpassed FY 2016 demand of 647k sqm. and will most likely register by year-end at the 750k-800k sqm. level due to notable live requirements now at 488k sqm. Live requirements are office transactions in various stages and are the highest they have ever been since Q2 2019.

Vacancies across Metro Manila are at 18% with contractions remaining at manageable levels.

“Contractions appear to have levelled off and it feels like we are back to 2016 before POGOs hyper-charged the market beginning in 2017,” said David Leechiu, LPC CEO, at a briefing. The IT-BPM sector, which accounted for 332k sqm. YTD 2022, “has once again saved the day for the Philippine office market.”

In the past two pandemic years, the IT-BPM industry has leased 777k sqm. or 48% of total demand from Q1 2020 – YTD 2022 amounting to 1.62 million sqm., the study further noted.

Even when viewed against all the contractions which have consistently been led by POGOs in the past two years, the Philippine office market still registered positive growth, said Mikko Barranda, director for commercial leasing. From 2020 to YTD 2022, office demand increased by 78% while contractions decreased by 31%.

Net demand for YTD 2022 is at 314k sqm. led by the IT-BPM sector which accounted for 222k of net demand in the past two years. Despite lockdowns and surges and various work arrangements, IT-BPMs posted over the same period net demand of 513k sqm. representing a 7% increase in their footprint which now registers at 7.5 million sqm.

Capital values of key business districts have likewise remained resilient in the last two years even in the face of the pandemic, and now, the declining peso, inflation and rising interest rates. Filinvest City has exhibited the highest growth in the past six years with a CAGR of 23%. Its projected Accommodation Value (price per sqm. of buildable Gross Floor Area) by year end is at P44,100 or an estimated 45% more than the 2020 figure. Projected AV of BGC by year end will be an estimated P113k/ sqm. or 15% more than 2020 figure.

Alvin Magat, director for Investment Sales, said: “Key business districts continue to prove that they are low risk investments since their values are driven by the supply in their respective areas and are not affected by economic downturns.”

He also pointed out that the last two years of the pandemic spurred ecommerce platforms and other technology-dependent services which in turn have driven demand for industrial sites for warehousing, data centers, manufacturing facilities and distribution hubs. In the next four years, 2.6 million sqms. of new industrial land will come onstream to meet that need.

In the residential segment, sales of residential condominiums in Metro Manila increased by 6% from Q2 2022 to Q3 2023. On the other hand, developers seem to be more confident of better days ahead as shown by the number of new launches which has increased by 127% since Q2 2022, according to Roy Golez, director for Research and Consultancy.

Moreover, government has targeted the delivery of 1 million affordable housing units annually to address the current backlog of 6.5 million units. This will result in a 3.14x multiplier effect from housing that will cut across other segments of society and help pump prime the economy.

Golez also noted the continued increase in residential lot prices in Cavite and Laguna with a prime subdivision showing a CAGR of 15% over three years and another exhibiting a 12% increase over just eight months. The completion of new infrastructure north of Metro Manila and business expansion have also raised residential lot prices in Bulacan, Pampanga and Bataan. First home lots in two subdivisions in Porac, Pampanga, for instance, have registered a CAGR of 16% over 8 years and 14% over 7 years.

David Leechiu, CEO, remarked: “We are pleased that the Philippine IT-BPM sector continues to provide a crucial service to many firms in the West especially in times of uncertainty. Seasoned IT-BPM observers have projected the sector will continue to expand its headcount in the next few years. Even if work-from-home arrangements remain popular, we are confident they will continue to hold up the Philippine office market and economy as they have done in the past two decades.”

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Office space demand highest since 2020