By Denise A. Valdez

OFFICE space vacancy rates in Davao are projected to surge to double-digits this year, as business activity is disrupted by lockdown measures to contain the coronavirus disease 2019 (COVID-19) pandemic.

Real estate consultancy firm Colliers International Philippines is looking at a 10% drop in office rents in Davao this year, as leasing activities in the region are seen to fall on an annual basis.

“We are likely to see a higher vacancy for 2020 because of the slower leasing activities. We’re also seeing supply completions being slowed down by the COVID-19 pandemic… Because of this supply and demand balance, we are likely to see a correction in office lease rates in Davao City,” Colliers Senior Research Manager Joey Roi H. Bondoc said in an online briefing Friday.

He said office supply may still increase this year by 20% or 53,200 square meters (sq.m.), because while completion delays are expected, the projects may still be finished in the next quarters.

But similarly, demand for office space is seen to fall more than half to 21,000 sq.m. in 2020 from 44,500 sq.m. in 2019. Colliers said this would pull down the annual average demand for office space to 13,900 sq.m. in the next two years.

With this, office space vacancy is seen to shoot up to 14.5% this year from 5.4% in 2019. The projected annual average vacancy from 2020 to 2022 is at 8%.

Mr. Bondoc said accreditation for economic zones by the Philippine Economic Zone Authority (PEZA) would be an important factor to drive office space take-up, particularly from business process outsourcing (BPO) occupiers.

“PEZA is an important factor whenever BPO companies look for expansion sites. Why? For an outsourcing company, you have to be in a PEZA-certified building to be able to grab incentives… And of course major BPO companies are very sensitive to fiscal and non-tax incentives because this would have a significant impact on their financial performance,” he said.

He noted Davao currently has 23,000 sq.m. of PEZA-certified ecozones until 2022, which can easily be taken up in less than a year.

“We need to provide more options for BPO companies that are planning to expand outside of Metro Manila,” Mr. Bondoc said. “I think it really makes sense for the government to approve more PEZA-proclaimed offices outside of Metro Manila, and of course Davao, being one of the major outsourcing sites, should get a lot of that PEZA-proclaimed office space,” he added.

Landlords are advised to highlight PEZA-accredited spaces to entice BPO companies. As health concerns have also become more important amid the pandemic, landlords should also drive attention to property management and sanitation capabilities.

For occupiers, Colliers is recommending that they lock in space in integrated communities and townships to improve access and more easily maintain physical distancing protocols.

“What’s good about Davao is it is a major BPO hub in Mindanao… Overall, we believe that Davao will remain an attractive site for investments, for businesses, for malls, for condominiums, for offices, even beyond the administration of President (Rodrigo R.) Duterte,” Mr. Bondoc said.