APPD Market Report Article


February 28, 2023

Janlo Delosreyes, Head of Research, Philippines


PHP 1,125


Leasing volumes due to policy changes and economic headwinds

  • Net absorption cooled to around 11,300 sqm in 4Q22. Slower leasing activity was observed from BPOs which were allowed to implement a full remote work arrangement by transferring to the Board of Investments (BOI). This led to an increasing volume of enterprises shifting to the BOI to avail of the flexibility offered, regardless of the level of remote work they intended to implement.
  • Corporate occupiers led the transactions recorded in 4Q22. Notable leases included a 1,440-sqm deal by a media firm, a 980-sqm lease by a recruitment agency in Taguig City, and a 500-sqm take-up by an airline company in Makati City. Despite the headwinds faced, BPO activity was still recorded, although notably lower. This included a 2,300-sqm and a 1,200-sqm lease in Taguig City.

In 4Q22, around 43,200 sqm of leasable office space went online

  • Two developments, specifically MKTan Centre in Taguig City, and PMI Tower in Makati City, added around 43,200 sqm of leasable office space to the market in 4Q22. Slippages were still recorded, such as Makati Commerce Tower and Sennett Corporate Center being delayed to 2023, which will bump up supply by around 62,000 sqm in the year.
  • Slower demand and continued space rationalisation from BPOs, corporate occupiers, and POGOs, drove vacancy upwards to 12.1% in 4Q22, up by 57.1 bps q-o-q. The shift to BOI encouraged some BPOs, especially those in IT services, to release spaces. The presence of new supply which went online with a significant volume of vacant space also contributed to the uptick in vacancy.

Weaker market weighs down rentals

  • Rents contracted by 0.9% q-o-q to PHP 1,125 per sqm per month in 4Q22, on the back of a slower leasing market. The majority of landlords have opted to hold on to their rates to facilitate take-up amid soaring interest and inflation rates. Meanwhile, lower rates were observed among developments which continued to record elevated vacancy, pulling down the market average.
  • Capital values sustained a positive trajectory and settled at PHP 180,628 per sqm despite continuous hikes on interest rates. Well-performing assets drove the uptick in prices, whereas most developments retained their current rates. The price growth in 4Q22 was less aggressive compared to previous quarters, due to high interest rates.

Outlook: Leasing demand remains cool amid structural changes

  • Leasing volumes are anticipated to remain weak in the near term as more BPOs shift to the BOI to avail of the flexibility in work arrangements. Nevertheless, industry growth is still projected in the long term, in line with the IT and Business Process Association of the Philippines (IBPAP)’s roadmap projecting revenues to hit USD 59 billion, and the workforce to expand by 1.1 million by 2028.
  • Rents are projected to stay flat in the near term, on the back of the slower leasing demand anticipated. Meanwhile, capital values are seen to maintain an upward trajectory, although growth may be slower relative to 2022 as soaring interest rates weigh down on investor sentiment.

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

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