Finance

Office space developers turn cautious amid rising vacancies


PHILIPPINE STAR/ MICHAEL VARCAS

By Jenina P. Ibañez, Reporter

NEW OFFICE supply this year could be lower than initially projected as developers avoid overbuilding while they await the recovery of the sector, Colliers Philippines said.

In a report, Colliers Philippines said that new office supply could reach 847,600 square meters (sq.m.) this year, down from the 878,200 sq.m. projection as developers try to prevent further increases in vacancies and rent corrections.

“Developers have become more prudent in their supply strategy to ensure that new supply matches actual demand as they await recovery,” the firm said.

The annual office space completion forecast from 2021-2025 was cut by three percent to 621,300 sq.m. Quezon City, Bay Area and Ortigas central business districts could account for almost half of the new supply during the period.   

“The supply pipeline is seen to be decreasing to the 500-600 (thousand) square meter level, which was the level of annual supply during the pre-POGO era,” Colliers Philippines Office Services and Tenant Representation Director Dom Fredrick Andaya said at a briefing on Friday.

Many Philippine Offshore Gaming Operators (POGOs), which had previously driven a surge in office space demand, have been vacating office spaces during the pandemic in response to travel restrictions and tax issues.

Office space transactions have recently improved, fueled by demand from outsourcing and traditional firms responding to lower base rents and higher quality spaces.

JLL Philippines in a briefing last week said lease volume levels are picking up in the office market compared to last year, although this remains low compared to pre-pandemic levels.

“There’s a lot more inquiries for Metro Manila requirements and also Metro Cebu,” JLL Philippines Head of Research and Consultancy Janlo de los Reyes said, noting improving corporate occupier sentiment as vaccination rates grow.

But vacancies still outpace transactions.

“In the first quarter of 2021, we shared that the level of vacant spaces was already decreasing, while the level of transactions significantly increased. But the surge in COVID-19 cases affected heavily the second quarter results,” Mr. Andaya said.

“That’s why we saw the level of vacated spaces climbing up again, which was caused mainly by significant lease cancellations by the POGOs and some other occupiers.”

Office space vacancies rose to 12.7% in the second quarter from 11% in the first three months of the year. Colliers revised its office vacancy projection to 15.6% by the end of the year from 12.5% amid weak pre-leasing and the completion of more spaces towards the end of 2021.

Net take-up for the year could reach only 85,800 sq.m., Colliers said, down from the earlier estimate of 351,000 sq.m.

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