Higher premium office space demand expected in 2023

Leasing activities in Metro Manila’s premium office space market is projected to improve next year, with the growth in rental rates in the country’s main urban metropolis increasing along with the recovery, according to a report by global commercial real estate services firm Cushman and Wakefield.

In its Asia-Pacific Office Outlook 2023 publication, the company said the vacancy rate in the overall Grade A office market is seen to decline to 15.4 percent in 2023, easing from this year’s projection of 16.1 percent.

“New entrants from the IT-BPM (Information Technology and Business Process Management) sector are expected to flock into the country in 2023. This includes prospects that Cushman & Wakefield is already talking to at the moment, with take-up expected mid-2023,” the firm said.

The net absorption rate— a metric used to assess occupancy rates—remained positive at 327,300 square meters (sq m), higher than the figure that it is seen to settle this year at 200,600 sq m.

A higher net absorption means that more office space has been occupied than vacated during a given period.

“Manila’s first year of negative net absorption was recorded in 2020. The market rebounded in 2021, albeit, with significantly lower levels of demand than prepandemic [times],” the firm said.

Increase in rents

With the declining vacancy levels, rental rates are also expected to increase on the average of P1,062 per sqm per month, coming from the monthly average of P1,046 per sqm that it is seen to settle this year.

The rate of its increase is also jumping from 0.04 percent this year to 1.6 percent in 2023.

“Rents are expected to show positive year-on-year growth in 2022, after declining in 2021,” said the real estate consultancy firm.

“From there, rents are expected to grow by approximately 2.3% annually until 2026,” it added.

The Philippines’ IT-BPM sector is looking at bright prospects over the next several years, signaling a similar rosy future for office space leasing. Back in September, the IT-BPM Process Association of the Philippines said it was looking to grow its revenues by up to 10 percent and its full-time employees by up to 8 percent in 2022.

The country’s biggest industry association of IT-BPM firms also said they were aiming to create up to 1.1 million direct jobs in the next six years.

The number of full-time employees in the sector is also seen growing to 2.5 million by 2028, coming from the 1.44 million recorded in 2021 according to the business group’s projection.