Office rents may rise by 2% this year

OFFICE rental rates are projected to go up by as much as 2% this year, thanks to anticipated demand from companies looking to outsource operations to the Philippines, Cushman & Wakefield said.

“Despite the several global economic headwinds ahead, the Philippine IT-BPM (information technology and business process management) industry is expected to significantly benefit from large-scale lay-offs in tech companies. Mass job cuts among tech and startup companies have driven the demand for outsourcing and IT-BPM related industries in order to further save up on operating costs amidst the challenging business environment,” Cushman & Wakefield said in a report.

“As demand starts to recover, average prime and grade ‘A’ rents are estimated to grow at a base scenario between 1.5%-2.0% in 2023.”

Tech giants such as Amazon.com, Inc., Google parent Alphabet, Inc., Microsoft Corp., IBM Corp. and Facebook owner Meta Platforms, Inc. have announced massive layoffs. Financial firms such as Goldman Sachs, Morgan Stanley, and Citigroup, have also started reducing staff.

“Overall vacancy rate for Metro Manila is forecasted to go down in 2023 partly due to the rekindled interest of multi-national companies looking at setting up back-office or shared services operations in the country,” Tetet Castro, director and head of tenant advisory group at Cushman & Wakefield, said.

Average vacancy rates inched up to 16.13% in the fourth quarter of 2022, from 16.12% in the third quarter, Cushman & Wakefield said.

While office market recovery continued in the fourth quarter of 2022, Ms. Castro said vacancy rates may slightly go up in the first quarter due to “the addition of new stocks from new building completions as well as non-renewal or early return of space by occupiers continuing their exercise of rightsizing or converting to a hybrid set-up.”

Average rental rates also dipped 0.16% quarter on quarter due to the volume of new stock completions. Year on year, average prime and grade ‘A’ rents fell by 0.51% in 2022, despite a 0.4% year-on-year growth in net absorption.

Claro Cordero, director and head of research, consulting & advisory services at Cushman & Wakefield, said only a handful of buildings have slightly lowered rents, “although rental flexibility is dependent on the amount of space to be taken in by the prospective tenant.”

“Positive rental growth is likely to happen in 2023 as delayed prospects are expected to get a green light this year, giving confidence to developers and landlords to test resistance levels on the pre-pandemic published rates, while overall market vacancy tapers down,” he said.

Mr. Cordero said allowing IT-BPM companies registered with the Board of Investments to continue work-from-home arrangements will also boost growth of flexible workspaces.

“A hub-and-spoke strategy will likely increase the demand for plug-and-play office spaces which are readily-available on short notice and with flexible terms,” he added.

In 2022, total completions stood at 0.34 million square meters (sq.m.), bringing the total prime and grade ‘A’ office supply in Metro Manila at approximately 9.2 million sq.m.

Cushman & Wakefield said office supply is likely to expand by 0.53 million sq.m. this year. — Cathy Rose A. Garcia