Amid the still raging pandemic, office leasing continues to experience challenges. There are, however, bright spots that landlords and tenants should maximize during and post-COVID-19.
At Colliers Philippines, we conducted a poll during our Feb. 9 Property Market webinar and the results were pretty interesting. We had more than 300 respondents from various developers, equity firms and other stakeholders. The results showed optimism for the office market in a postpandemic era.
Despite the popularity of work-from-home arrangements, majority of respondents (63 percent) still believe they are more productive in a traditional office setup. This should buoy landlords’ optimism that has been suffering from increasing vacancies since the start of the pandemic.
Two-thirds of respondents said they are willing to work in a hotel room converted into a flexible workspace or co-working facility, which could help hotels across Metro Manila offset their low occupancies and significantly reduced daily rates.
However, Colliers previously noted that at this point, not all hotels can pivot to what the market requires. Some four- and five-star hotels, for instance, have limited wiggle room due to their partnership with foreign brands. In our view, local brands have the opportunity to easily adapt to current market demands, including conversion and repurposing to flexible workspaces and quarantine facilities.
Alternative leasing schemes, expansion sites
Colliers has observed that while most leasing is momentarily paused, some occupiers are still actively looking for office space, especially those from the essential industries and companies that plan to implement alternative schemes such as a hub and spoke model. Colliers encourages landlords to expand tenants’ options by offering available office space in non-core locations where rates are cheaper than existing options in major business districts.
Be more flexible to tenants’ request for concessions
In our view, tenants continue to take a wait-and-see stance and look for opportunities to reduce costs while aligning their leasing strategies with their business plans. We see tenants exploring short term (e.g. six months) lease renewals during this period of uncertainty, complementing traditional offices with remote work models.
Meanwhile, the companies that are still expanding are likely to renew leases and take advantage of opportunities to negotiate a more reasonable commercial structure that is attuned to market conditions such as a lower base rent, delayed escalation, fit-out financing and rent-free incentives. In our view, landlords should be more proactive in accommodating tenants’ requests for concessions to prioritize healthy levels of occupancy during this period.
Landlords to be mindful of new supply
From the bitter experience during the Asian financial crisis, developers quickly understood the need to turn off the supply tap. This was evident in 2010 after the global financial crisis, when office completion dropped to 203,000 sqm from 523,000 sqm in 2009, as projects were deferred or outright cancelled. Colliers encourages landlords to be mindful of their office supply pipeline, balancing new development with their building’s pre-leasing status and the overall pace of leasing recovery.
Maximize proximity to infrastructure projects
Colliers encourages developers to maximize the proximity of their buildings to upcoming key infrastructure projects due to be completed in Metro Manila. Among the projects that are expected to be completed from 2021 to 2022 are the LRT-2 East Extension, NLEx-SLEx Connector Road, Skyway SLEx Extension, Estrella-Pantaleon Bridge and the BGC-Ortigas Link Bridge. Among the locations that are likely to benefit from the completion of these projects are Fort Bonifacio, Alabang, Ortigas CBD and Quezon City. Developments in these areas should allow landlords to highlight the advantages of their proximity to public infrastructure and lure the workforce back to traditional offices.
Tap essential segments’ office requirements
In 2020, Colliers recorded 27,000 sqm of office space deals from traditional occupiers providing essential services such as healthcare, e-commerce, financial technology (fintech), telecommunications and logistics and warehousing. We project demand from these sub-segments to be sustained over the next 12 to 24 months as these are likely to be driven by a lockdown and a household consumption-led economy. Hence, developers should proactively target these companies’ office space requirements moving forward.