APPD Market Report Article


May 26, 2024

Janlo Delosreyes, Head of Research, Philippines


PHP 1,112


Higher leasing volumes turn absorption to positive territory

  • Net absorption saw a notable rebound, reaching 16,900 sqm in 1Q24, mainly driven by a substantial number of office transactions compared to both the previous quarter and the same period last year. Noteworthy transactions included a 6,600 sqm lease for a BPO company in Taguig City and another BPO firm securing 2,150 sqm of office space in Makati City.
  • Nonetheless, move-outs were tallied during the quarter, with a corporate firm releasing 1,000 sqm of office space in Taguig City, and a BPO firm vacating another 2,000 sqm in Makati City.

Completion of one development expands supply by 13,200 sqm

  • The opening of One Ayala Avenue South Tower in Makati City expanded the existing stock by approximately 13,200 sqm in 1Q24. Nonetheless, some developments, such as Altaire Tower, Filinvest Buendia and International Finance Center, originally set for completion in 1Q24, were postponed to 2Q24. The delay has boosted the expected supply for the next quarter to 136,500 sqm.
  • The projected supply in the upcoming quarters may further elevate vacancy rates. Meanwhile, vacancy rates in 1Q24 fell to 17.9%, down by 12.7 bps, attributed to heightened leasing activity during the quarter combined with minimal new supply. However, vacancy levels are anticipated to rise in the next quarter, as the bulk of the upcoming supply is slated to come online in the near term.

Rent and price growth continues to slow amid headwinds

  • Office rents saw a slight uptick of 0.3%, settling at PHP 1,112.3 per sqm, per month. The rates for most office developments remained stable, except for the new development, One Ayala Avenue South Tower, which recorded above-average rents, contributing slightly to the overall average increase. 
  • Prices fell 0.5% to PHP 178,299 per sqm as economic headwinds continued to weigh on the investment sector, limiting price increases.

Outlook: Soft leasing market to persist, pressuring vacancy

  • Leasing demand should remain cool in the near term with slow RTO rate growth. RTO rates for fully operational firms stood at 63.0% in March 2024, unchanged from the previous three months. However, the BPO sector is set to drive the office market moving forward as the industry continues to expand. The IT-BPM industry’s revenue rose by 9.0% to USD 35.5 billion in 2023 from USD 32.5 billion in 2022.
  • Most landlords are expected to maintain their current rents in the near term to sustain demand. However, some landlords with high occupancy rates may gradually increase rents, leading to a slight uptick in the market average. Meanwhile, capital values are anticipated to grow at a slower pace due to elevated interest rates.

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

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