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Office MarketBeat Report

Claro Cordero Jr. • 23/04/2021

NEW SURGE IN COVID-19 CASES TO DAMPEN NEAR-TERM ECONOMIC RECOVERY

The continued increase in the number of new COVID-19 cases since mid-March 2021 prompted the imposition of the strictest level of localized lockdown in Metro Manila and surrounding areas. The strict pandemic control measures being imposed in the country’s largest economic region is expected to delay near-term recovery. The Philippine economy suffered its deepest contraction as GDP growth rate declined by 9.6% for the full 2020 calendar year. Household final consumption expenditure declined by 7.9%, while gross capital formation declined by 34.4%, as consumer and investment sentiments remained generally muted despite a slight pick-up in economic activities in the second half of 2020.

Philippine GDP growth rate is expected to rebound within the 6.0%-7.0% range in 2021, although growth assumptions have been pegged mostly with the rate of re-opening the economy, dependent on the success of the nationwide inoculation program – which has been earlier hit by the lack of vaccine supplies amidst local logistical issues.

OVERALL VACANCY RATES SURPASSED 10 PERCENT

Overall Metro Manila Prime and Grade ‘A’ office vacancy rate grew by 290 basis points (bps) quarter-on-quarter (QoQ) and 710 bps year-on-year (YoY) to 10.7% in the first quarter of 2021. This is the first double-digit vacancy rate recorded after the 14.5% figure in 2009 as an effect of the Global Financial Crisis (GFC). The exit of several offshore gaming companies and workspace rationalization of several companies as the work-from-home (WFH) set-up continues, coupled with new supply completions within the quarter, have contributed to the growth in vacancy rates. Pre-commitment has been observed to be lower than historical average in the various office projects completed in Q1 2021. Approximately 65.6% of the 203,000 sq.m. new supply in the first quarter remains available in the market.

FIRST YEAR-ON-YEAR RENTAL DECLINE SINCE GFC RECORDED

The office sub-sector in Metro Manila officially crosses to tenant-favorable territory with the first YoY decline since 2009, with a slight contraction of 1.2% YoY to PHP 1,070/sq.m./mo – which is also 0.4% lower than the quarter-ago value of PHP 1,074/sq.m./mo. While offer rents in most Prime and Grade ‘A’ developments in Makati CBD and BGC remained unchanged since its year-ago levels, several landlords and developers have started to offer more flexibility in rent negotiations.

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