By Adam J. Ang

THE IMPLEMENTATION of flexible working arrangements compelled companies to rationalize their office space requirements by looking at areas outside business districts, according to Colliers International Philippines.

With businesses permitted to resume operations at half of their capacity, many are looking to “occupy smaller spaces in non-core locations outside the major business districts, ” said Joey Roi H. Bondoc, a senior research manager at Colliers Philippines, during a virtual briefing on July 30.

Colliers said business process outsourcing (BPO) companies are likely to expand to fringe business areas to minimize costs while maintaining operations as an essential business sector amid the global coronavirus pandemic.

Mr. Bondoc recommended BPO firms expand outside Metro Manila, specifically in Clark, Iloilo, Bacolod, Davao and Cebu, where they can be provided with up to 114,000 square meters (sq.m.) in office space.

The use of co-working spaces during the quarantine months has also picked up and might “become popular moving forward,” he noted.

“Only 3% of our leasable space is from co-working facilities. But we see a minimal increase in terms of share, about 3.5% by 2021,” the Colliers executive said, adding this may further increase.

The Philippine office market suffered a “double whammy” as the pandemic disrupted businesses’ real estate expansion and slowed office space completions, according to the property consultancy firm.

With this, Colliers projects vacancy rate to rise to 5.3% in 2020 from 4.3% in 2019.

The vacancy rate in the second quarter rose to 4.9% from the previous quarter’s 4.1% level. This can lead to a rental correction between 5% to 20%, Colliers said.

Still, landlords accommodated requests from tenants to adjust rents, as they see “a slower absorption in the market and a dampened sentiment for expansion by large BPO companies and traditional firms,” Mr. Bondoc said.

Office space occupied in the first half of the year declined by 77% to only 78,000 sq.m., compared to last year’s 334,000 sq.m., due to slower take-up by BPOs and Philippine Offshore Gaming Operators (POGO), and businesses holding off their expansion plans.

The consultancy firm recorded about 260,000 sq.m. in office transactions in the period, which is 64% lower over last year’s level. The low pre-leasing record was due to developers deferring the completion of office buildings.

“We are looking at about two quarters of delay for buildings that have significant developments already,” Mr. Bondoc said.

By yearend, new office space are seen to dwindle to 500,000 sq.m. from a record-high 1.2 million sq.m. noted in 2018, when more POGOs operated in the country.