Landlords recalibrate to maximize Metro Manila office opportunities

Camaro Square is a 4-story retail building rising along Commonwealth Avenue in Quezon City.

Colliers continues to see a testy Metro Manila office market. While the market is gradually recovering, challenges remain, and landlords need to address these to be a step ahead in the game. Office developers need to be more strategic as they build more towers and seize demand from outsourcing firms.

Vacancies

From Alabang to Quezon City, vacancies range between 9.4 percent and 36 percent, but the good news is that some central business districts are starting to see improvement in vacancies. While vacancies remain elevated, Colliers believes expanding business process outsourcing (BPO) companies are likely to occupy more traditional office spaces. However, some tenants continue to vacate offices and this is likely to stifle office space absorption moving forward.

We still see a tenant-leaning market and this should provide an opportunity for firms (BPOs and traditional/corporate firms) to haggle for lower rates. Landlords, meanwhile, should remain proactive in chasing major occupants that are on the lookout for expansive and new office spaces as well as sustainable buildings.

Sustainable towers

Outside traditional office buildings, developers should ramp up construction of more sustainable office towers to capture demand from large occupiers that put a premium on sustainability.

Flexible workspaces

There are also abundant opportunities for flexible workspace operators. Partnering with them should be an option for landlords especially given the popularity of “work-from-anywhere” scheme among the dynamic, mobile millennial and Gen Z workforces. In our view, maintaining the status quo just won’t cut it. Developers should exhibit flexibility amid uncertainties.

Columna in Binondo, Manila

Concessions

Over the past year, many traditional firms have implemented a mix of non-renewal and pre-termination of their leases. Given this, retention of existing tenants in a landlord’s portfolio as well as securing of leases from new clients are important to most developers today.

Landlords may achieve this by engaging in early renewal discussions with their existing tenants, providing creative renewal terms and other special concessions that will enable them to retain high occupancy in their office buildings.

In our view, developers that also provide tenant improvement or fit out allowance will be able to attract new occupiers in their portfolio. Landlords should be proactive in providing this concession especially to large IT and business process management firms.

Opportunities in the countryside

At Colliers, we have seen growing interest from BPOs for key cities outside Metro Manila. Cebu, Pampanga, Iloilo, and Bacolod are among the popular expansion sites outside of the capital region. But we also see rising interest for second and third-tier cities including Dagupan, Naga, Laoag, Dumaguete, Tarlac, and Bulacan.

Colliers believes that for these areas to eventually emerge as key locations for BPOs, landlords, local government units, and local ICT councils need to work together to address skills mismatch across the country. This should result in the emergence of more outsourcing sites outside of Metro Manila.

As of end 2022, about 70,000 jobs were generated in Cebu, Davao, Pampanga, Bacolod and Laguna, with provincial full-time employees (FTEs) now reaching 486,000, or 31 percent of the industry’s total headcount, according to data from the Information Technology and Business Process Association of the Philippines (IBPAP).

The author is the director and head of Landlord Representation at Colliers Philippines