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Q4 2020 Philippine Office & Investment MarketBeat Reports

Claro Cordero Jr. • 21/01/2021

Average office rents have marginally declined as investment activities remain minimal due to lingering economic uncertainties

Prime and Grade A Metro Manila office supply stood at 8.2 million square meters (sq.m.) by end-2020. The total stock grew by 376,000 sq.m., which represents only 45% of the stock originally scheduled for completion in 2020. Of the estimated 1.4 million sq.m. expected to be completed in the next four (4) years, over 509,000 sq.m. of projects have been pushed by at least six (6) months, with over 169,000 sq.m. of which having adjusted completion dates of over two (2) years from their respective intended completion dates.

Overall vacancy rates also increased by 145 basis points to 7.8%, driven mainly by the continued flight of the Philippine Offshore Gaming Operators (POGO) locators. The re-opening of previously committed spaces in recently completed buildings due to indefinitely suspended expansion plans is also pushing vacancy rates further upwards.

Average Rents Registered Minimal Decline

As demand remained generally muted, average rents in Metro Manila declined by 0.1% quarter-on-quarter (qoq) and settled at PHP1,027/sq.m./mo., although still 2.31% higher when compared with its year ago-level. Rents have remained unchanged in the first three (3) quarters of 2020.

The decline in average rents was mainly due to the downward adjustments in the asking rents of developments located outside of the main CBDs. Several landlords and developers have offered the newly vacated spaces of POGOs at discounted rates in a bid to attract new tenants in their developments.

On the other hand, average rents of Prime and Grade A developments in the main CBDs – Makati CBD and Bonifacio Global City – were relatively unchanged. Landlords and developers have managed to provide flexible terms to existing tenants and retained them in their buildings.

Pent-Up Demand From IT-BPM Firms

The pent-up demand from IT-business process management (IT-BPM) companies is expected to be revitalized in the short-to medium-term.

Tetet Castro, Director and Head of Tenant Advisory Group at Cushman & Wakefield, said, “What is interesting to note is that there are some spaces that have been taken up in 2019 up to early 2020 in recently-completed or even under construction buildings that have been re-opened, denoting that some pre-committed spaces have been given up as a result of expansion plans being put on hold indefinitely. Majority of these are existing BPO players. On the other hand, there has been an increased interest from companies looking at setting up their first local offshore operations in the Philippines due to our affordable occupancy and labor costs, but the materialization of such interest is dependent on how soon our local COVID situation improves.”

New Workplace Ecosystem and Growth of Alternative Asset Classes Hastening Development Outside CBDs

Location strategy for corporates is not likely to change significantly in the wake of the pandemic – workers will still prefer walkable mixed-use developments close to their places of residence and presence of safe and basic community amenities. What is expected to evolve is the work set-up, as long-term office space demand points to flexible location strategy in order to support the perspectives on employee engagement and productivity.

Claro Cordero, Director and Head of Research, Consulting & Advisory Services at Cushman & Wakefield, said, “Mixed-use developments and new urban centers outside the CBDs are now given the highlight to support this evolving workplace ecosystem. In addition, the growth of alternative asset classes such as logistics, data centers and other life-sciences industries is hastening new urban renewal opportunities in non-CBD locations in the medium-term.”

Among the key property sub-sectors, demand for industrial and logistics properties is expected to be buoyed by the continued growth of the e-commerce industry. Footfall in retail establishments remain low as uncertainties continue to dent consumer spending, the main driver of the retail sub-sector. Retailers adopt omni-channel strategies to take part of the growing preference towards online shopping while the essential segment continues to lead the retail sub-sector. The stunted growth of remittances from overseas Filipinos and the preference towards less dense developments continue to cast uncertainties in the growth of capital values in the mid-end residential condominium sub-sector in the medium-term. The hotel sub-sector is also similarly reeling from the effects of extended decline in tourist arrivals and rising operating costs.

The market has also shown significant interest in the real estate investment trust (REIT) vehicles as it anticipates the subsequent REIT offerings after the successful launch of AREIT in August 2020. DoubleDragon Properties Corp. is finalizing the listing of DDMP REIT Inc., which has filed its application to the Securities and Exchange Commission (SEC) in November 2020.

Investment Activities Remain Dull in Light of Slower Than Expected Economic Recovery

The volume of major investment transactions remained low as business and consumer confidence have been severely affected by the lingering economic uncertainties. Taking cues from other global investment markets, the key to sustainable recovery is the proper implementation of effective economic stimulus programs and continued capacity-building (such as roll-out of infrastructure development programs).

Market opportunities, on the other hand, will be enhanced as more reasonably priced assets are expected to be offered. Office (gross) rental yield in the investment-grade office market in 4Q 2020 remained was at 6.7%, down by 40 basis points from its level in Q4 2019.

Mr. Cordero added, “Speculative investment offerings are expected to take a backseat, while majority of the future transactions are seen to be aimed for self-use. Large-scale corporate occupiers may want to take the opportunity to acquire assets as a form of insulation when the market starts to recover in the medium-term.”


About Cushman & Wakefield

Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 53,000 employees in 400 offices and 60 countries. In 2019, the firm had revenue of $8.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit or follow @CushWake on Twitter.