APPD Market Report Article


February 22, 2024

Janlo Delosreyes, Head of Research, Philippines


PHP 1,122


Lower leasing volume as firms continue to rightsize

  • Net absorption took a downturn in 4Q23, reaching -2,600 sqm, due to an increased number of pull-outs and a reduction in lease volume. Makati City saw notable exits, with a BPO company vacating 2,151 sqm and another BPO firm releasing 1,178 sqm of office space. A 1,722 sqm space release by a tech firm was also recorded in Taguig City. 
  • Nonetheless, transactions were still recorded, including a 3,343 sqm take up by a BPO-financial services firm in Taguig City, and a 1,482 sqm deal by a BPO firm in Makati City. Corporate occupiers also tallied take-ups, including 1,078 sqm by a telecommunication firm and 1,506 sqm by a financial firm, both in Taguig City.

Completion of one development raises supply by 108,915 sqm

  • The addition of Uptown East in Taguig City increased existing stock by around 109,000 sqm. However, certain developments initially slated for completion in the quarter, including Altaire Tower, Filinvest Buendia and One Ayala Avenue HQ in Makati City, as well as International Finance Center, were moved to 1Q24, increasing the expected supply for the next quarter to 139,800 sqm.
  • The vacancy rate climbed to 18.0% in 4Q23, up by 197.1 bps, as the leasing market slowed down, coupled with the additional supply. A further uptrend in vacancy levels is expected in the first half of 2024, due to the substantial amount of upcoming supply expected to be introduced in the next two quarters. The influx of expected supply in 2024 is anticipated to impede vacancy recovery.

Rents and capital values’ growth remain stagnant

  • Office rents in 4Q23 stood at PHP 1,122.1 per sqm, per month, almost steady q-o-q, owing to a sluggish office market. A majority of the office buildings retained their rates, while selected developments opted to lower rents to stimulate demand. 
  • Prices remained relatively stable in 4Q23, settling at PHP 181,452 per sqm, as economic headwinds continued to impede growth in the investment market. Interest rates rose by another 25 bps to 6.5% in 4Q23, contrary to investor expectations for rate cuts.

Outlook: Leasing activity may cool as firms await new policy changes

  • Lower demand is expected for upcoming quarters, particularly in the BPO sector where IT-BPM firms may take a cautious, wait-and-see approach due to ongoing discussions about proposed amendments to the CREATE Law. If enacted, this would allow BPO companies to implement full work-from-home schemes while retaining their tax incentives, prompting a reconsideration of their office space requirements.
  • Most developments are likely to keep their rents due to expected slower demand and rising vacancy levels, driven by the projected influx of new supply. In contrast, prime developments with strong demand are likely to see rent increases, potentially lifting the overall market average. Capital values are likely to continue to exhibit slower growth due to the prevailing high interest rates. 

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

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