NCR office vacancy worsens in Q3 with more firms working remotely, POGO departures

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Metro Manila (CNN Philippines, November 24) — More office spaces in Metro Manila were left unoccupied in the third quarter as remote work becomes more commonplace among companies, a property consultancy firm recently reported.

KMC Savills reported an office vacancy rate of 15.5% in the capital region, more than double the 7.3% figure logged from July to September last year.

“[D]ue to Delta variant concerns, some have pushed back return-to-office timelines until early 2022. Pre-terminations and non-renewals continue to drag demand,” said the company in its third quarter briefing on office space in the metropolis.

Organizations have continued decentralizing their workforce with remote work becoming mainstream, KMC Savills noted, adding this poses challenges for traditional administrative processes and portfolio planning.

“With more than a million sq. m. (square meters) of new supply to come online by 2022, vacancies may continue to break record level highs,” read the report.

KMC Savills also flagged the ongoing exodus of Philippine offshore gaming operators (POGOs) in the three-month period.

“The lasting effects of COVID-19, China’s online gambling crackdown, and the new tax requirement for POGOs continue to drive the sector away. This leaves multiple office and residential buildings unoccupied,” it stated.

The Bay Area, which covers the cities of Parañaque and Pasay, suffered severely during the quarter because of this. Its vacancy rate now stands at 18.5%, up from 8.2% in the second quarter last year according to KMC Savills.

“Negative net absorption was at 63,800 sq m – the biggest decline recorded in one single quarter. Majority of vacancies came from non-renewal of leases from the POGO industry,” the report read, adding POGOs now only comprise 26% of this submarket.

Alabang, which has an 18.9% vacancy rate, saw 10,100 sq. m. of office space emptied as most of its tenants from POGOs and business process outsourcing (BPO) firms downsized their office portfolios.

Both Alabang and the Bay Area are expected to experience a surge in vacancies, with new office spaces of over 120,000 sq. m. and 313,000 sq. m. respectively planned in the months ahead.

How other submarkets fared

Makati was not exempted from weak office demand in the third quarter. It logged a 15.3% vacancy rate in the third quarter, rising by more than four-folds from the same period last year. Some 21,600 sq. m. of spaces were emptied, with Alveo Financial Tower and Ayala Triangle Tower 2 pushing vacancies up.

“Despite the muted supply in the next few quarters, the vacancy rate in Makati CBD is still expected to remain in the mid to high-teens until 2022,” said KMC Savills.

While 46,200 sq. m. in office spaces were leased in Ortigas Center during the period, the additional 178,300 sq. m. of fresh supply pushed up the business district’s vacancy rate to 20.2%.

“The improving stock, complemented by its affordability has been attracting potential occupiers — having closed large e-commerce players such as Shopee and Grab during the first nine months of the year,” said KMC Savills.

Still, it noted vacancies in Ortigas Center may still go up in the upcoming quarters with about 231,300 sq. m. of new office spaces slated to become available.

Quezon City observed a “sluggish” transaction volume during the quarter, which the consulting firm said was driven by tenant departures. About 2,500 sq. m. of office spaces were unoccupied in the period, yielding an 18.6% vacancy rate — which KMC Savills referred to as a slower pace of acceleration.

Weak business sentiment coupled with an excess office space inventory are expected to keep vacancies up in the quarters ahead, said KMC Savills, noting the drop in occupancies was mainly due to BPOs reducing their office footprint amid remote work policies.

Bonifacio Global City, however, went against the downtrend during the quarter. Market conditions improved in the district as demand outpaced supply, yielding a lower vacancy rate of 9.8%.

“We still saw a significant number of non-renewals while large transactions remain scarce. Amid the completion of Alveo Park Triangle Tower, net take-up in the submarket managed to close at 40,600 sq m.,” said KMC Savills.

Vacancies in BGC may stabilize in the quarters ahead with the easing of office developments, it added.

“Given the premium spaces available in the submarket, flight-to-quality may remain a prominent trend which could effectively have rents fluctuating,” KMC Savills explained.