Office space demand to grow in next 6 months

OFFICE SPACE demand in the Philippines is expected to pick up in the next six months, driven mainly by the information technology and business process management (IT-BPM) sector as lockdown restrictions ease and many firms issue back-to-office orders.

Leechiu Property Consultants (LPC) said active office leasing requirements likely to be completed in the next six months went up to 358,000 square meters (sq.m.), reflecting pent-up demand.

“We have a good chance of closing 650,000 sq.m. this year compared to last year’s 540,000 sq.m. all throughout the Philippines,” LPC Chief Executive Officer David T. Leechiu said at a virtual briefing.

“Barring what happens in Europe or if there is another Omicron variant, things look good for Philippine real estate so far. Property values continue to climb across all sectors,” he added.

In the first quarter, Philippine office demand reached 124,000 sq.m. despite the reimposition of a stricter Alert Level 3 in Metro Manila in January due to the Omicron-driven surge in coronavirus disease 2019 (COVID-19) cases. While office space transactions were affected by the lockdown, more deals were concluded after the alert level was downgraded.

“Despite having almost half of the first quarter shut down, the office leasing transactions continued to grow… “The pipeline of deals that we see wanting to be transacted has been exceeded…. (This) shows you the number of companies that want to sign a lease. These are some of the highest numbers we have seen in the last nine quarters,” Mr. Leechiu said.

The IT-BPM sector continued to drive office space demand in the first three months of 2022, making up 39,000 sq.m.

In the next six months, LPC said IT-BPM firms are expected to take up 195,000 sq.m. or 55% of the 358,000 sq.m. of live requirements to be completed during the period.

The IT-BPM sector is expected to continue to grow by an annual 6.5% in 2022, after a 7.1% growth in 2021.

The government has insisted IT-BPM companies registered with the Philippine Economic Zone Authority (PEZA) to end the work-from-home arrangements for 90% of their workforce, and require all employees to work on-site starting April.

Based on location, Metro Manila accounts for 67% of all live office requirements, with 240,000 sq.m.

LPC noted that current vacancy rate in Metro Manila is at 19%, with Makati and Bonifacio Global City having the lowest at 15% and 17%, respectively. Taguig City and the Ortigas/Pasig/Mandaluyong business district have the highest vacancy rates at 25% and 24%, respectively.

LPC noted that the vacancies at PEZA-registered office buildings is expected to slightly increase in 2023. However, there will be limited supply of new PEZA spaces in 2024 and 2025, posing a challenge for the IT-BPM sector, it added.

“Tenants should be proactive in securing long-term leases to avoid a drastic increase in rent,” LPC said.

The Fiscal and Incentives Review Board (FIRB) earlier this month rejected a request from PEZA to lift the moratorium on the declaration of economic zones in Metro Manila. The government wants economic zones to be established outside of the capital region to spur growth in other provinces.

LAND VALUES GO UP
LPC noted commercial land values remain high, especially in the central business districts. For instance, accommodation values in Bonifacio Global City hit an all-time high of P113,000 in 2021 or as much as P1.7 million per sq.m. effectively in land value.

Luxury village land values, as well as luxury condominium prices have continued to rise despite the pandemic.

LPC said the price of lots in Ayala Alabang surged 58% to P200,000 per sq.m., while San Lorenzo, Greenhills and Valle Verde land values also increased by 19%, 14% and 13%, respectively.

“Capital values for luxury projects have continued to grow despite the economic downturn which shows the strong capital preservation of these assets,” it said.

Residential units in key districts have also seen an increase in their capital values in the first quarter of 2022, and are now back to pre-pandemic levels.

LPC said Rockwell South in Calamba was launched in 2019 at P35,000 per sq.m. and is now at P53,100 per sq.m. It noted Ayala Land launched Ciela at Aera Heights in Carmona, Cavite last year, and the land value has now gone up 6% to P52,300 per sq.m.

“Despite an anti-climactic first quarter, we remain optimistic that the property market led by the office sector will bounce back this year — barring any more extraordinary events. As the economy opens up, we look forward to improvements in office demand, capital values and rents. We believe the real estate industry will have a good story to tell in 2022,” Mr. Leechiu said. — Luisa Maria Jacinta C. Jocson