Demand for Office Space in the Philippines Expected to Reach Postpandemic High
According to Leechiu Property Consultants (LPC), the demand for office space in the Philippines is projected to reach a volume of 1 million square meters (sq m) by the end of this year. This reflects the country’s ability to expand despite the global economic challenges brought about by the pandemic. In the first nine months of the year, office demand reached 809,000 sq m, a 17 percent increase compared to the same period last year. LPC’s director for commercial leasing, Mikko Barranda, attributes this growth to the thriving information-technology/business process management (IT-BPM) sector. He believes that the country will surpass its 2022 total of 989,000 sq m and achieve a record-high level of office demand by 2024 or 2025.
However, the projected volume for this year is still lower than the levels seen in 2018 and 2019, which reached 1.3 million and 1.7 million sq m, respectively. Barranda explains that these years were heavily influenced by the Philippine offshore gaming operators (Pogo) boom, which was characterized by a significant contribution to office demand. However, recent regulations and increasing scrutiny have impacted the Pogo industry, resulting in decreased demand from this sector. Despite this, Barranda remains optimistic about the future of office demand in the country.
The IT-BPM sector has been a major driver of office demand, accounting for 240,000 sq m of net positive demand in the first half of 2023. Metro Manila, along with Bengaluru and Delhi, is among the top locations worldwide that have shown strong take-up during this period. Major IT-BPM companies have shown a growing preference for “microsites” or hub-and-spoke operations in non-core areas. This trend reflects the potential for venturing outside Metro Manila to establish new sites in provincial areas. Barranda notes that 37 percent of IT-BPM transactions, equivalent to 124,000 sqm, were mainly leased in Metro Cebu, Quezon City, and Clark, Pampanga. These microsites and the hub-and-spoke strategy enable IT-BPM firms to maximize employee retention by allowing their employees to work near their homes.
Currently, there is a total office supply of 18.1 million sqm in the country, with 82 percent located in Metro Manila. However, the overall vacancy rate remains elevated at 19 percent due to the completion of new office buildings. BGC has the lowest vacancy rate at 9 percent, while the Manila Bay and Alabang/Las Pinas areas have the highest at 27 percent. In the first nine months, 77 percent of total office demand came from Metro Manila, with Cebu accounting for the majority share outside the metropolis.
LPC expects the office vacancy rate to start easing next year and reach single-digit levels by 2027, assuming a consistent 1-million sqm annual demand and a decrease in office supply after 2024. In the residential sector, there has been a strong launch of nearly 20,000 units targeting the upper-middle and upscale markets. LPC predicts that new residential launches and sales take-up will end this year significantly higher than last year, reflecting increased confidence from developers and investors.
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