Office market showing signs of rebound

By Keren Concepcion G. Valmonte, Reporter

THE OFFICE leasing market is beginning to show signs of recovery from the coronavirus pandemic as terminations begin to “meaningfully slow down” in the third quarter, Leechiu Property Consultants (LPC) said on Thursday.

Office space demand is expected to reach 450,000-500,000 square meters (sq.m.) by yearend, led by the Information Technology and Business Process Management (IT-BPM) sector, LPC executives said.

However, this is still way below the pre-pandemic demand of 1.75 million sq.m. in 2019.

“One of the better news we’ve received this quarter is that the office leasing contractions or terminations are down by 69%, the lowest it has been throughout the last 18 months,” Mikail C. Barranda, director for commercial leasing at LPC, said at an online briefing on Thursday.

In the third quarter, office leasing terminations declined to 42,000 sq.m. from the second quarter.

Office take-up in the first nine months reached 383,000 sq.m., which is already 98% of the full-year demand in 2020.

“While the recovery has not been as fast as earlier predicted, the worst appears to be behind us,” LPC President and Chief Executive Officer David T. Leechiu said.

However, third-quarter office demand slowed quarter on quarter due to the spike in coronavirus disease 2019 (COVID-19) infections and strict lockdown in Metro Manila, LPC said.

“But this has been offset by 228,000 sq.m. of active office leasing requirements seeking to be completed within the next six months,” it said, noting about 70,000 to 100,000 sq.m. may be finalized in the remaining months of 2021.

The IT-BPM industry accounts for 129,000 sq.m. or 57% of the total live leasing requirements in the next six months, LPC said.

Philippine Offshore Gaming Operators (POGOs) made up for 5% of the inquiries received by LPC.

“Hopefully, with the passage of the new POGO law or the Republic Act 11590, as far as we know, it has been well-received by the operators, it rationalizes the tax and as the airways start to open up, we may see them starting to operate again in their existing offices and hopefully take space again by next year,” Mr. Barranda said.

The law will subject offshore gaming firms to a 5% tax on gross gaming revenues. The Finance department said it is projecting tax collections from POGOs to reach up to P76.2 billion from 2022 to 2023. 

ILOILO SURPRISES
Around 75% or 289,000 sq.m. of the year-to-date office transactions were recorded in Metro Manila. It already surpassed the 266,000 sq.m. office transactions in Metro Manila in 2020.

Meanwhile, 25% or 94,000 sq.m. were logged from provincial areas, which represent nearly three-fourths of the transactions in 2020.

“Iloilo continues to surprise. Iloilo picked up 40%, almost 40% of total office demand in the provinces outside of Manila and that has been sustained for about two and a half years,” Mr. Leechiu said.   

Iloilo accounted for 39% or 37,000 sq.m. of office transactions in the provincial areas, followed by Clark, Pampanga (14% or 13,000 sq.m.), Laguna (12% or 11,000 sq.m.), Davao (10% or 9,000 sq.m.), Cebu (8% or 8,000 sq.m.).

“Iloilo now has become a template for many of the provinces. For one, it has quality real estate availability coming from one of the largest developers, Megaworld [Corp.], which has converted the old airport into a mixed-use township development, 24/7 retail, office, hotel, basically all the support systems needed,” Mr. Barranda said.

The LPC report also pointed out that BPO (business process outsourcing) companies are looking “for new geographies to penetrate.” It identified Laoag in Ilocos Norte, Tuguegarao City in Cagayan, and Bohol as cities that may be attractive to BPO firms.

The real estate consultancy firm is anticipating demand to “drastically increase” in the fourth quarter as borders reopen for international travelers.