A fifth of prime office space seen staying empty until 2025

Vacancy rates in Metro Manila’s premium office space market hit 20.3 percent in 2022, staying in the double-digit zone recorded in the last two years as the market segment continued to struggle to recover to prepandemic levels.

Property consulting firm KMC Savills on Wednesday said that vacancy rates in the overall grade A office market in the urban metropolis hit this level, up from the previous year’s 18.2 percent.

“We are not going back to 90 percent occupancy. So, from here we are looking at an average of 20 percent (vacancy rates) until maybe 2025,” KMC Savills research manager Fredrick Rara said in a press conference.

In the two years before the pandemic, vacancy rates were at 5.4 percent in 2019 while it was 4.8 percent in 2018 in this market segment.

In 2020, it was also lower than last year’s, reaching only 9.30 percent.

Sought for comment during the press conference, KMC Savills managing director Michael McCullough offered two reasons why the market segment is struggling to return to levels before the outbreak of the coronavirus pandemic.

“The main driver is actually the occupants. And when you look at the foot traffic studies. If a foot traffic of a company with a hundred employees has ten people coming in everyday, that’s going to reduce demand especially when those leases expire,” McCullough said.

No Pogo boost

“The other thing that really artificially inflated rates is the Pogo (Philippine Offshore Gaming Operators) demand in 2019,” he added.

Despite this, net absorption—a metric used to measure occupancy rates—remained positive at 270,900 square meters (sqm) during the fourth quarter of 2022.

A higher net absorption means that more office space was occupied rather than vacated.

On the other hand, net rental rates continued to decline for the third straight year, registering a 0.77 percent decrease leading to an average rent of P820.65 per sqm across six Metro Manila submarkets during the fourth quarter.

In 2021, net rental rates decreased by 1.83 percent, while contracting 0.35 percent in 2020.

In 2018 and 2019, it increased by 4.97 percent and 4.16 percent, respectively.

In the fourth quarter of 2022, net rental rates were the highest at the Makati Central Business District at P1052.4 per sqm.

Bonifacio Global City followed with P1,031.8 per sqm, Bay Area with P813 per sqm, Quezon City with P706.8 per sqm, Ortigas Center with P687 per sqm and Alabang with P632.9 sqm. INQ