Date: November 29, 2024
Metro Manila's office space market is witnessing a significant shift, with vacancy rates expected to climb to 20.5% by the end of the year. This projection by Colliers Philippines highlights a growing concern in the capital's real estate sector. Factors such as the large-scale departure of Philippine offshore gaming operators (POGOs) and an increase in new office constructions are pivotal in shaping this trend. This blog delves into the nuances of why Metro Manila is bracing for an uptick in unoccupied office spaces, underlining the implications for property sales and rentals in Manila.
1. Surge in New Office Supply
Concurrently, there is a substantial influx of new office space slated to hit the market. Colliers projects an addition of 119,000 square meters by the fourth quarter of this year alone, with a massive 615,000 square meters anticipated by 2025. Notably, areas like Cubao, North Edsa, and the Bay Area will be the focal points for these developments. This increase in supply, amid faltering demand primarily due to the POGO exit, is set to further exacerbate vacancy rates, challenging the equilibrium between supply and demand in Manila’s office rental market.
2. Exit of POGOs
The anticipated increase in office vacancy rates in Metro Manila can largely be attributed to the exodus of POGOs. With new regulations and a ban announced by the government, these entities are winding down operations, leading to significant non-renewals of leases. Already, 57,000 square meters of office space have been vacated, with an additional 157,000 square meters expected to follow suit by year-end. This substantial reduction in occupied space is a primary driver for the spike in vacancy rates, as these gaming operators previously occupied prime real estate across the city.
3. Differential Impact on Submarkets
The impact of these shifts is not uniformly distributed across all submarkets in Metro Manila. While areas with significant exposure to POGOs, such as the Bay Area, are expected to witness a decline in rental rates by the end of the year, other regions like Makati, Fort Bonifacio, and Ortigas might see marginal increases. These variances underscore the situational dynamics of office rents in Metro Manila, influenced by factors such as building age, occupancy rates, and the specific circumstances of landlords.
4. Stability Despite Challenges
Despite these challenges, there are emerging signs of market resilience. The transaction volume in office spaces has seen improvements, led by sectors such as information technology and business process management, alongside traditional office users. This suggests a diversification in the types of businesses entering or expanding within the Metro Manila office market, potentially mitigating some negative impacts of the increased vacancies.
5. Regulatory and Economic Outlook
The broader economic and regulatory landscape also plays a crucial role in shaping the office space market in Metro Manila. Upcoming events like the US elections and local legislation, such as the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE), are poised to influence business sentiments and investment decisions. These factors could either buffer the market against potential downturns or exacerbate current trends, depending on their nature and implementation.
The rising office vacancy rate in Metro Manila is a multifaceted issue, influenced by a complex interplay of market supply, regulatory changes, and economic conditions. As the year draws to a close, the real estate sector must navigate these turbulent waters with strategic foresight. For investors and businesses, these dynamics present both challenges and opportunities. Understanding these trends is crucial for anyone involved in the Manila property market, whether in sales or rentals, as they will significantly shape investment strategies and property management approaches in the coming years.
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