Office space vacancies continue to rise in Metro Manila
The business downturn caused by the coronavirus pandemic and the shakeout of Philippine offshore gaming operators (Pogos) have caused massive losses across Metro Manila’s office properties in the third quarter, property consulting firm KMC Savills said.
In its third-quarter property market report, KMC Savills noted that office occupancy in the metropolis deteriorated for the second straight quarter, with nearly 47,800 square meters of office space vacated during the period. This hiked office vacancy rate in the metropolis to 7.3 percent from 5.4 percent at end-2019.
In an interview yesterday, KMC Savills managing director Michael McCullough said the reopening of the economy would hopefully cap average vacancy rate in the National Capital Region below 10-11 percent. But if tough lockdown protocols would be reimposed, he said the vacancy rate could worsen to 15 percent.
Rental rates are seen to flatten in the coming quarters, at best. Compared to year-on-year levels, average rentals still grew by 1.6 percent year-on-year in the third quarter, but average rates declined by 0.2 percent quarter-on-quarter. As pressures continue to mount, KMC Savills foresees possible annual contraction in overall rent levels in the coming periods.
One of the hardest hit areas during the quarter was the C5 Corridor. The report noted that this area had been deeply affected by reduced demand from Pogos, which vacated about 40,200 sqm of office space during the quarter.
Vacancies also spiked in Ortigas Center, curbing average rents in the district by 0.9 percent in the third quarter year-on-year and sustaining what was seen as a worrying trend of negative annual rental growth. With nearly 345,000 sqm of stock scheduled to be completed throughout 2021, vacancies are seen to worsen to almost 25 percent from close to 15 percent at present.
While there are a lot of beautiful new buildings rising in Ortigas, lack of Philippine Economic Zone Authority (Peza) accreditation is seen to make it more challenging to attract tenants from the information technology/business process outsourcing (IT/BPO) sector at this time.
In Makati, tenants vacated 39,831 sqm of Grade A office space, bringing up the vacancy rate to 3.34 percent. This was the first time the vacancy rate in the financial district breached 3 percent since the second quarter of 2017.
“The rest of the Metro Manila office market has yet to suffer significant losses from the recent reports of the Pogo exodus. As companies formalize terminations of their current leases, wholesale changes to rent and occupancy levels could be observed in submarkets previously dominated by the Pogo sector,” the report said.
While the Pogo boom may be over, McCullough said, “I don’t think it’s the death of the sector.”
However, he said a number of master Pogo licenses might be canceled and some of the existing operators might choose sublicenses and operate on a much smaller size.
In the Bay Area, which has become a haven for Pogos in recent years, the office market has yet to reflect the movement in the Pogo sector. But this area experienced muted activity throughout the third quarter, with vacancies increasing to 35,100 sqm. Vacancies may yet rise as these companies officially vacate their office space in the coming months, the report said.
Based on the Philippine Amusement and Gaming Corp. data as of September, registered Pogo operators have declined from about 60 at the start of 2020 to only 29 in operation to date. In addition, only 99 out of 218 accredited local gaming agents and service providers have been allowed to resume operations.
Even for the IT/BPO, KMC Savills senior research manager Fred Rara said “a bit of weakness” was now emerging, but “not as big as we would have thought, like in the Pogo sector.”
In the case of Bonifacio Global City (BGC), Rara said there wasn’t a big slump in the second quarter. In the third quarter, about 7,000 sqm were vacated by IT/BPOs, which were quite small, he added.
“If we say that BGC is the center of that sector, we don’t think the sector even weakened. Pogo is really the main concern,” he said.
Despite worsening market conditions, preleasing activity in BGC remained positive. However, KMC Savills expects vacancies in this submarket to breach the 5-percent threshold from around 4.6 percent to date, with 281,000 sqm of new office space coming online next year. INQ
