Manila office absorption increases to 20,500sqm in Q3

Thanks to a stronger leasing market. 

Net absorption in Manila’s office sector expanded to 20,500 sqm in 3Q23, driven by a healthier leasing market and a decrease from previous quarters’ pull-outs. 

Notable deals were tallied by JLL, including a 4,530 sqm lease and a 1,611 sqm deal by BPO-tech firms in Taguig City, and another 1,000 sqm take-up by a logistics firm in Makati City. 

Here’s more from JLL:

Nonetheless, move-outs were still recorded, but at a slower pace than in previous quarters. Release of spaces from select occupiers remained persistent as they adapted their footprint to new work arrangements. Significant pull-outs included a 2,669 sqm vacated space in Taguig City and 814 sqm of released space by a corporate firm in Makati City.

No new supply introduced in the quarter

No new office development was recorded in 3Q23, as the projected openings of some developments that were due in the quarter were moved to 4Q23, while one development was pushed to 1Q24. These developments will contribute around 158,400 sqm of office space, which is expected to boost supply and raise vacancy levels by the end of the year.

The vacancy rate fell further to 16.0% in 3Q23, down by 44.1 bps q-o-q, due to a better leasing market and a lack of new supply during the quarter. However, vacancy levels are projected to rise by the end of the year, as most of the new supply will come on stream in the last quarter of the year.

Financial indicators’ growth pace slows

Rents started to rise to PHP 1,121.9 per sqm per month, the first increase in the last three quarters, as certain developments lifted rents due to increased leasing activity. However, most of the developments still retained their rates to maintain demand.

Prices were constant at PHP 181,321 per sqm in 3Q23, as the investment market remained muted, slowing price growth. Interest rates remained elevated in the last four meetings, with no sign of rate cuts, delaying investment activities. 

Outlook: Leasing activity to stay stable as firms finalise workspace

Leasing volumes are expected to remain steady as occupiers have a more precise view of their working arrangements, whether hybrid or on-site. The BPO sector continued to dominate and boost leasing volumes in the market as the sector expanded further, in line with the industry target of USD 59 billion in revenue and an additional 1.1 million jobs by 2028.

Most of the developments are expected to retain rents for the upcoming quarters, as vacancy levels rise due to the projected volume of new supply. Meanwhile, prime developments with good take-up are expected to increase rents, potentially raising the market average. On the other hand, capital values are projected to still grow at a slow pace, influenced by the high interest rates.

Note: Manila Office refers to the Makati City and Taguig City Grade A office market.