Metro Manila office rental to plunge by 17% this year

MANILA, Philippines — Office rental in Metro Manila is seen to plunge by 17 percent this year due to softer demand from all sectors, but is expected to recover by next year, a property services firm said.

In its first quarter office report, Colliers International Philippines said office lease rates across Metro Manila is expected to drop by 17 percent to P850 per square meter (sqm).

As of the end of the first quarter 2020, average office lease rates grew 1.8 percent to P1,024 per sqm.

“With our projected recovery in 2021, lease rates should rise about two percent. Colliers see faster recovery in 2022,” Colliers said.

Colliers International Philippines research manager Joey Roi Bondoc said the impact of the coronavirus disease 2019 or COVID-19 pandemic on the office market is worse than the global financial crisis in 2009, wherein rents declined by 14 percent.

“Probably not as bad as the Asian financial crisis as the financial system is strong and interest rates are as low as they have ever been,”Bondoc said.

Vacancy rate in Metro Manila is seen to rise to 5.5 percent this year, from 4.1 percent as of the end of the first quarter of 2020.

“The rise is likely to be tempered by less supply this year, but vacancy is likely to drop in 2021 due to a sharp rise in demand,”Colliers said.

In terms of supply, Colliers estimates that total new supply in 2020 is seen to reach 784,700 sqm, lower than the initial forecast of one million sqm, as the work stoppage due to the community quarantine and supply chain disruption of construction materials are likely to affect office completions for this year.

“With completion being pushed back by about three to six months, Colliers now estimates annual new completion from 2020 to 2022 to reach 896,100 sqm from our original forecast of about 977,800 sqm,”Colliers said.

It added that the market is likely to see the full effect of the enhanced community quarantine and the pandemic for the remainder of 2020.

“The pace of construction after the quarantine will also likely depend on how developers observe social distancing in construction sites,” Colliers said.

Meanwhile office space demand for this year is seen to drop 594,000 sqm, lower than Colliers’ initial projected take-up of 900,000 sqm.

“In our opinion, if the virus peaks in H1 2020 and market conditions start to improve in H2 2020, we are likely to see a recovery from both outsourcing and traditional segments in 2021,” Colliers said.

“The rebound in demand should also offset a sluggish take-up from POGOs in 2020,” it added.