APPD Market Report Article

Manila

May 31, 2022

0.3%

PHP 1,126

Decline
Slowing

Net absorption at a positive, buoyed by new completions.

  • Net absorption turned positive in 1Q22, settling at 216,900 sqm, after four consecutive quarters of negative net absorption. Completion of new buildings with occupied space, as well as notable transactions led to positive absorption. Notable deals in 1Q22 include a 16,500-sqm lease in Taguig City by a technology company, as well as an 8,100-sqm transaction by a BPO firm in Makati City.
  • Despite the positive net absorption, pull outs were still seen in the quarter, the largest being a 32,700-sqm space vacated by a POGO firm in Makati City. Some traditional occupiers and BPO firms also exited sizeable spaces during the quarter including a mobile phone operator, an asset design and consultancy firm, and a BPO company vacating around 4,600 sqm, 4,200 sqm, and 1,300 sqm, respectively.

Five developments complete in 1Q22

  • An uptick in construction and the easing of restrictions led to the completion of five buildings in 1Q22, adding 248,800 sqm to the stock. Alveo Financial Tower and One Ayala Tower 1 in Makati City, and Savya Financial Center North Tower, Worldwide Plaza, and Alveo Park Triangle in Taguig City came online. Around 285,800 sqm from seven developments is expected to come online by end-2022.
  • Vacancy recorded an almost flat growth and settled at 12.9%, contracting incrementally by 0.7 bps q-o-q. Notable leases came mostly from traditional firms and BPO players. By the same measure, large pull-outs were recorded from POGOs, BPOs, and traditional occupiers.

Rents and capital values post marginal movements

  • Office rents contracted, albeit incrementally, to PHP 1,126 per sqm per month, down by 0.1% q-o-q. Rents were maintained in the majority of the buildings and the contraction was driven by a single development which recorded a large volume of space vacated during the quarter.
  • Capital values continued to inch up, settling at PHP 174,133 per sqm, a 0.8% improvement q-o-q. Despite the relatively sluggish selling market, prices continued to appreciate, although noticeably slower compared to pre-pandemic levels.

Outlook: Activity to remain subdued over the next three months

  • Leasing activity is anticipated to remain slow in the next three months as occupiers and investors await the National Elections to play out, and policies to be finalised. Uptick in leasing activities from the BPO sector may be seen in the short term as they are mandated to return to the office by April 1, 2022, although demand may be towards the flexible workspace domain.
  • Rents are expected to remain unmoved in the near term. The majority of the landlords are seen to hold on to their rates and contractions may only be observed for developments with notable movements in vacancies. An uptick in rents, on the other hand, may be seen by the latter half of the year once the market stabilises from major socio-political events.

Note: Manila Office refers to the Makati City and Taguig City Grade A office market.

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