Demand for office space is still strong amid the health crisis and the change of government, Leechiu Property Consultants (LPC) said on Wednesday.
“The office market remains to be resilient,” LPC Director for Commercial Leasing Mikko Barranda told reporters during their webinar, where they revealed the results of their June 2022 report. It indicated that rental deals have reached 379,000 square meters in the first half, or already 70 percent of the overall takeup in 2021.
“We are happy to announce that we’ve concluded 255,000 square meters [sq. m.] of transaction in the second quarter of 2022 alone, which is a 106-percent [hike] compared to last quarter. This is also the largest volume of transactions we’ve seen since the start of Covid-19 in March of 2020,” he said.
Per the study, information technology-business process management (IT-BPM) companies accounted for 107,000 sq m or 43 percent of the office space demand from April to June 2022, with majority of the deals in Metro Manila.
The Philippine Offshore Gaming Operators (Pogos) took up 21,000 sq. m. or 9 percent, the first sign of leasing activity from this industry since the pandemic began, as 126,000 sq. m. or 48 percent were taken by the other tenants.
“This can best be interpreted as tentative steps for now,” the top executive said. “All the leasing activity in the past three months—from many new captives and companies doing business here for the first time—tell us outsourcing to the Philippines continues to be a reliable solution for companies in the West fighting impending global recession.”
On the supply side, Metro Manila as a whole currently has 14.22 million sq. m. of office inventory, of which 11.64 million sq. m. (82 percent) are occupied by tenants while 2.57 million sq. m. (18 percent) are vacant.
Contractions went up by 63 percent with 170,000 sq. m. vacant office spaces in the second quarter from the first three months of 2022, mostly from Pogos at 64,000 sq. m., followed by others at 55,000 sq. m., and IT-BPMs at 51,000 sq. m.
“Continued Pogo contractions indicate fluidity in this industry,” Barranda said. “This may be a high number, but we do need to look at supply and vacancy on a per district basis.”
He said, for instance, that in Bonifacio Global City (12 percent) in Taguig and Makati (14 percent), “vacancy levels in absolute terms or absolute numbers are manageable also given that they‘re experiencing demand from both the BPO [business process outsourcing] sector and multinational companies.”
Other districts like Ortigas (20 percent) and the Bay Area (28 percent), he said, “may have a larger vacant portfolio, and those that are non-Peza may take longer to reach out given that the BPO sector will still require most buildings to be Peza-accredited.”
The LPC study indicated that the IT-BPM headcount from 2019 to 2021 rose by 15 percent. As many as 120,000 full time employees were hired at the height of the pandemic last year.
While many companies had adopted hybrid set-ups with some employees working onsite and others doing their jobs at home, they still continued to take up office space albeit at a more modest rate, according to the report.
For Barranda, the office sector’s constant growth momentum has overshadowed the expected “wait-and-see” mode of the market with the looming exit in government of outgoing President Rodrigo Duterte to give way to the incoming administration of President-elect Ferdinand R. Marcos Jr.
“I can refer back within how demand has reckoned in the second quarter of 2022. So despite being an election quarter, we’ve seen commitments still coming in for the BPO sector. It hasn’t stopped them from signing leases,” he said.
Looking forward, he is bullish that the office market will climb to pre-pandemic levels, with a healthy pipeline of active office leasing transactions amounting to 451,00 sq. m.—again with IT-BPM firms leading the live requirements at 212,000 sq. m. of the total—expected to be done in the next 6 to 12 months.
“We, of course, will need to also see how this administration will position themselves in terms of the industries that are here and growing, whether it be the BPO industry and to see also how the Pogos will fare in the next six months given the new administration. But demand has peaked and the takeup is here to stay,” Barranda said.