APPD Market Report Article


September 4, 2023

Janlo Delosreyes, Head of Research, Philippines


PHP 1,115


Absorption stable with slower rightsizing and steady demand

  • Absorption sustained its momentum, settling at 12,500 sqm. Leasing activities were relatively stable with notable deals closed, including financial services BPOs which took up about 13,800 sqm and 2,800 sqm in Taguig City. Deals from traditional occupiers were also recorded, such as a 1,300-sqm lease by an energy firm in Makati City, and a 930-sqm deal by a consumer goods company in Taguig City. 
  • The stable absorption recorded in the quarter can also be largely attributed to the decline in rightsizing relative to previous quarters, as the market showcases early signs of stabilisation. Notable released spaces seen in 2Q23 included a 3,000-sqm vacated space by a BPO in Makati City, and a roughly 6,800-sqm space released by an e-commerce firm in Taguig City. 

No new office development in the quarter

  • No new office tower was introduced in the market in 2Q23 as delayed construction remained prevalent. Supply slippages further bumped up the volume of upcoming supply towards the year-end to roughly 267,400 sqm, potentially further elevating vacancy in the near term. 
  • The lack of new supply, stable leasing activities, and contraction on rightsizing, aided in the minimal decline of vacancy levels which settled at 16.5%, down by 26.8 bps q-o-q. However, the notable volume of new supply that may come online with minimal occupancy is expected to weigh down on the sustained recovery of vacancy rates. 

Rents and prices continue to decline amid uncertainties

  • Rents sustained its contraction and settled at PHP 1,115.1 per sqm per month, down by 0.1% q-o-q. Despite the decline, this contraction is notably not as significant as previous levels, due to a relatively healthier market. Rents held steady for the majority of the developments, while assets with long-vacated spaces brought down rates minimally.
  • Capital values started to decline and settled at PHP 181,325 per sqm, a decline of 0.5% q-o-q, largely driven by the slow investment market and dragged by elevated interest rates. This is evidenced by the number of office units returned in the inventory which are now offered at a lower price to help facilitate sales.  

Outlook: New supply volume may hinder recovery of vacancy and rents

  • Leasing activities are expected to remain relatively stable in the latter half of the year with firms now having a more concrete view on the work arrangement they are intending to implement in the medium to long term. Despite the flexibility offered to BPOs which transferred their registration to the Board of Investments, the sector is still anticipated to buoy the market, moving forward.
  • Rents for the majority of landlords are anticipated to remain unmoved for the remainder of the year as vacancy rises. New prime assets and developments with better take-up, on the other hand, are anticipated to hike rents, potentially bumping up the market average.    

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

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