Office deals continued to rise in the first half of 2024, but the influx of newly-built supply in the coming months is expected to keep double-digit vacancy rates elevated, masking the segment’s underlying strength, according to Leechiu Property Consultants (LPC).
Mikko Barranda, director for corporate leasing at LPC, stated that 675,000 square meters of office space was leased in the first half of the year, a 24 percent increase from last year.
Net demand jumped 56 percent to 445,000 sqm during that period, while an additional 453,000 square meters are expected to be leased out by year-end.
Big picture
The take-up signals recovery in one of the hardest-hit sectors during the recent pandemic but the challenge remains in finding enough tenants with another 786,000 sqm of offices soon entering the market.
“When people ask if our market is soft, it’s hard for them to appreciate that demand is strong because there’s just so much supply that’s being injected,” Barranda said.
LPC said overall vacancies stood at 17 percent, or 3.1 million sqm, which was a modest improvement from the first quarter of 2024.
Empty offices
Alabang had the highest vacancy rate with 27 percent of offices empty, while Bonifacio Global City was ahead of the pack with an 11 percent vacancy rate.
In terms of space, Ortigas, Mandaluyong, and San Juan (vacancy rate at 18 percent) had the largest inventory of empty offices at 571,000 sqm.
It could take a few more years to achieve a balance between industry supply and demand.
Barranda estimates around three more years before vacancies return to under 10 percent during the pre-pandemic period.
Demand drivers
According to LPC, information technology and outsourcing firms dominated demand in the first half, followed by traditional companies, Philippine offshore gaming operators or POGOs, and government tenants.
Barranda highlighted the largest surge coming from the government, which has grown 700 percent over the past year.
What could go wrong?
Barranda said the sector is recovering steadily, with supply issues expected to begin normalizing in 2025.
One risk for the industry is a potential total ban on POGOs.
“They’re still quite heavy in terms of the amount of space they have in the market,” Barranda said. “That would be a large contraction that we will need to find ways to fill.”
Miguel R. Camus has been a reporter covering various domestic business topics since 2009.
