APPD Market Report Article

Manila

August 26, 2022

Janlo de los Reyes, Head of Research, Philippines

0.2%

PHP 1,123

Decline
Slowing

Leasing volumes retain momentum

  • Net absorption remained positive, settling at 99,800 sqm, with move-ins accelerating and outpacing move-outs. BPOs continued to lead transactions with notable take-ups such as a 8,400 sqm lease in Taguig City, and two transactions of 2,800 sqm and 2,000 sqm in Makati City. Leases from corporate occupiers were also observed, which included a 14,600 sqm lease from a banking firm in Makati City.
  • Move-outs have slowed down compared to previous quarters, easing vacancy levels. Sizeable move-outs in 2Q22 include a 3,000 sqm and a 1,100 sqm space left by BPO firms, as well as a 1,100 sqm area vacated by a corporate occupier.

Approximately 54,100 sqm from two developments added to stock

  • The quarter saw the completion of two developments, specifically One Ayala Tower 2 and 1 Proscenium in Makati City, bumping up existing supply by 54,100 sqm. Slippages were still observed with the delayed completion of some developments slated to go online in the quarter. This expanded anticipated supply for the remainder of 2022 to 136,395 sqm may further slow down compression of vacancy.
  • Vacancy rate recorded a compression of 113 bps q-o-q to 11.8% in 2Q22. This is the steepest contraction recorded since the start of the pandemic, coming from the continuous uptick on vacancy levels and move-outs. Leases mostly led by BPOs and corporate occupiers drove the improvement of vacancy as companies prepare to return to full onsite work within 2022.

Rents continue to stabilise while capital values accelerate

  • Average office rents remained stable and settled at PHP 1,123 per sqm per month, a minimal contraction of 0.2% q-o-q. Landlords still opted to hold on to their rates to aid recovering demand, and compressions were only observed in developments with new sizeable, vacated spaces.
  • Capital values accelerated and grew by 1.5% q-o-q to PHP 176,745 per sqm, underpinned by the healthier sale demand observed in the quarter. Take-up of office space for sale is at a positive, after a stagnant performance during the peak of the pandemic, as investors resumed deals.

Outlook: Leasing volumes may see greater traction as market stabilises

  • Leasing volumes are projected to further accelerate in 2H22, as the market normalises with a new administration, COVID-19 cases are continuously being contained, and return to office mandates take effect. Activation of deals have been delayed due to the pandemic, and the anticipated entry of new firms are some of the other factors that may propel transactions in the coming quarters.
  • Rents and capital values are foreseen to improve in the coming months with the anticipated uptick of leasing and investment volumes. The stabilising of the economy have encouraged firms like Amdocs, LR Group and Maroonz Holdings to expand in the country. The expansion of these companies is set to generate 1,100 jobs for the BPO industry, which would likely translate to lease transactions.

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

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