PH Office market turns in surprise ’23 performance

Real estate services giant Leechiu Property Consultants is forecasting a “gradual” easing of office vacancies next year thanks to resilient demand from outsourcing firms and Philippine Offshore Gaining Operators (Pogo) that have returned to Manila Bay.

“The Philippine office market performed better than expected this year amid geopolitical uncertainties and looming fears that hybrid work will cause the market to contract significantly similar to major cities globally,” said Mikko Barranda, director for commercial leasing at Leechiu Property Consultants.

Data from the company showed overall office demand this year increasing by 8 percent from 2022, which was equivalent to 1.1 million square meters of newly leased space.

This brought down the overall vacancy rate by 19 percent to 18 percent, Leechiu Property noted.

Barranda said vacancies were poised to come down at a gradual pace due to the still significant pipeline of new office projects, which will increase existing supply once these are completed.

Main driver

Meanwhile, IT and business process outsourcing firms were the main demand driver this year, accounting for 42 percent. This was followed by Pogos, which took up 17 percent of leased space.

“The remaining space was leased by traditional occupiers who are driven by the flight to quality behavior as they moved to more efficient and cost-effective buildings,” Leechiu Properties said.

Metro Manila accounted for 79 percent of the newly leased space, with the Bay Area receiving majority at 26 percent. Moreover, 85 percent of this leased space in the Bay Area was taken up by POGO companies.

Cebu and Clark received the highest take-up at 54 percent and 17 percent, respectively, for areas outside Metro Manila. Bulk of the space was leased out by IT-BPM tenants for both locations.

“Historically, IT-BPM demand hovered around 500K square meters annually before the hybrid work setups were adopted,” Leechiu Property said.

“In 2022 and 2023, these demand levels were reached even with the widespread hybrid work setup. Additionally, traditional occupiers have shown an increasing appetite for new space,” it added.