In-office work setup hikes demand for office spaces

CEBU, Philippines — As majority of companies transition back to in-office work arrangements, even in the presence of hybrid work options, Cebu is poised to experience a surge in demand for office spaces. This follows a strong performance rebound in the first half of 2023.

A report released by property consulting firm KMC Savills showed a net absorption of 81,500 square meters (sqm) outpacing the new supply of 78,000 sqm in Cebu.

The report further said that the market’s vacancy rate dropped to 20.9 percent from 21.8 percent in the fourth quarter of 2022.

“The (Cebu office) market is expected to withstand any supply pressure as the Information Technology-Business Process Management sector increases its presence in regional cities. Due to the recovery in demand, Cebu’s vacancy rate is forecasted to return to pre-pandemic levels by 2025,” said John Corpus, executive director at KMC Savills.

Cebu Business Park and Cebu IT Park led the rebound. Cebu’s average net rental rate stood at P545 per square meter as of the first semester of this year.

Cebu has a current office stock of 1,253,722 sq.m. Some 129,356.4 sq.m. are in the pipeline of development from 2023 to 2025.

Meanwhile, the company saw similar growth dynamics in office space demand in other regional areas like Metro Clark, Davao, Iloilo, and Bacolod.

KMC Savills recently launched its first-ever regional office briefing highlighting the latest property updates and outlook for these top cities in the Philippines. This will give property capitalists a broader perspective on when and where to invest in office property developments in the regional areas.

In Metro Clark, the market continues to struggle with its vacancy rate rising to 33.6 percent in the first half of 2023, as one of the few remaining vestiges of the POGO (Philippine Offshore Gaming Operators) sector leaves. Although the overall vacancy rate is higher than in some submarkets in Metro Manila, leasing activity in Metro Clark has been healthier in the capital – albeit at specific locations only.

In Davao, KMC Savills Associate Director Joshua De Las Alas reported that the city’s overall vacancy rate dropped to 6.4 percent from 12.1 percent at the end of 2022. The market has continuously outperformed expectations after the vacancy rate peaked at 21.9 percent in the third quarter of 2021.

According to De Las Alas, Davao remains one of the most affordable markets in the country amidst the influx of demand from outsourcing firms. Unlike the other office markets in VisMin, Davao still lacks a sizeable cluster of townships that can command above-average rates.

However, KMC Savills forecasts that the current demand trend may be an opportunity for developers to rethink their strategy in the region.

In Iloilo, KMC Savills Chief Operating Officer Cha Carbonell shared that the city’s overall vacancy rate rose to 8.1 percent after the completion of Cybergate Iloilo Tower 2 in Pavia. Grade B stock saw a massive drop in its vacancy rate to 13.1 percent from 22.7 percent at the end of 2022.

The report showed optimism that vacancy rates should remain in single digits despite another 22,500 sq m of new office space in the second half of 2023.

In Bacolod, market occupancy remained low with a vacancy rate of 13.5 percent as demand continued to struggle. Leasing activity may improve in the coming quarters as demand is expected to spill over from neighboring Iloilo. Conditions are expected to be static in the next term, but leasing activity has picked up in recent months. The report does not discount the possibility of demand accelerating in 2024 due to the tight conditions in Iloilo. Given how quickly demand poured into its neighboring city, similar action by the market is expected in Bacolod.

Overall, KMC Savills reports that the total office stock in Iloilo, Bacolod, and Davao are notas sizeable as Metro Cebu or Metro Clark, however, the increased demand for these markets should trigger developers to construct new Grade A office buildings or introduce new business districts. KMC Savills is optimistic that these markets will continue to grow with the expansion of the IT-BPM sector outside Metro Manila. — (FREEMAN)