Office space demand to remain subdued in 2021

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A MAN wearing a protective mask sits outside a building within the Makati central business district during the enhanced community quarantine in March. — REUTERS/ELOISA LOPEZ

By Jenina P. Ibañez, Reporter

GROWTH in office space demand will likely be subdued next year, led by the business process outsourcing (BPO) and e-commerce sectors, a representative from commercial real estate services company Jones Lang LaSalle (JLL) said.

JLL Philippines Head of Research and Consultancy Janlo de los Reyes in an e-mail on Dec. 21 said that the company is anticipating improved office demand as organizations adjust to the “new normal” of business activities and position for growth.

“We anticipate a change in office space requirements given the operational impact of the pandemic where flexible work arrangement has become a norm across occupiers,” he said.

BPO will likely lead office demand, Mr. De los Reyes said, while POGOs office space demand will likely be slower compared to previous years.

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Technology would influence the property sector’s recovery next year as e-commerce demand grows, JLL’s Mr. De los Reyes said.

“We’ve seen the growth of e-commerce which is driving the logistics sector, technology, and on demand services firms. We’re also seeing increasing activity in data centers, security companies, life sciences, and multi-family dwellings,” he said.

Office space supply could also be lower than initially expected in 2021. Colliers International in an e-mail on Wednesday said that it predicts 632,600 square meters in new office space supply next year, which is 35% lower than what it had predicted at the start of 2020.

“We continue to see a challenging office leasing market,” the company said. “Philippine Offshore Gaming Operators (POGOs) have been vacating space while some traditional and outsourcing firms have either closed shop or are rationalizing their office footprint.”

Office space vacancy would rise to 11.6%, according to Colliers’ projection. This is higher than the expected 9.1% Metro Manila vacancy by the end of 2020, and the 4.3% logged in 2019.

The office leasing comeback would depend on the reopening of local businesses, Colliers said, including the recovery of global businesses that need outsourcing services from the Philippines.

“In our opinion, key segments such as telecommunications, medical coding, health information management, and e-commerce should help lift leasing starting H2 (second half) 2021.”

To improve office space leasing, Colliers said that landlords should offer spaces in “non-core” locations where rent is 30%-50% cheaper than central business districts.

“This is important especially for companies planning to implement a hub and spoke model wherein occupiers reduce the reliance of a single headquarters location for a more dispersed occupancy strategy.”

Leechiu Property Consultants (LPC) expects to see potential office space demand from BPO firms in Metro Manila, and provincial cities like Iloilo City.

LPC chief executive officer in a press release earlier this month said that more than half of vacated office spaces would lure expanding BPO firms because they are accredited by the Philippine Economic Zone Authority, deeming them eligible for tax incentives.

“Moreover, 82% of the aforementioned spaces are in Metro Manila, a primary destination for BPO firms,” the company said.

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