Because of the work-from-home arrangements of companies during the pandemic—which is still very much around—and the overproduction of office space buildings, vacancy rates will climb this year to 19 percent. But given the improving situation of the virus, the vacancy scenario may be reduced if BPOs and POGOs would resume their office work operations again.
A combination of the hybrid work-from-home arrangement caused by the lockdowns during the pandemic and the continued construction and current oversupply of office buildings will lead to a sustained climb in vacancy rates of by 19 percent.
Colliers Philippines Office Services and Tenant Representation said pre-leasing activities remain tepid and more supply is expected.
“We expect [office vacancy] to increase this year and that is because of a supply-driven scenario wherein we are expecting 900,000 square meters (sq.m.),” Colliers Philippines Senior Director Dom Fredrick Andaya said at a briefing on Wednesday.
The real estate services firm said 60 percent of the new office supply is located in the Bay Area, Fort Bonifacio, and Ortigas, reported Business World.
Vacancy rates are seen to stabilize if the coronavirus disease 2019 (COVID-19) situation improves.
Plateauing expected
“If (what) many of the studies are saying is true that we’re about to enter the endemic phase already of the COVID-19 pandemic then we expect the 19 percent (vacancy rate) to plateau already, then start falling by 2023,” Andaya said.
As of end-2021, the total Metro Manila office stock stood at 12.94 million sq.m., of which 2.03 million sq.m. were vacant.
The vacancy rate spiked during the pandemic, reaching 15.7 percent in 2021 and 9.1 percent in 2020, as strict lockdowns forced many employees to work from home. Office rental rates fell by 17 percent in 2020, and additional 12 percent in 2021.
In 2019, the vacancy rate stood at 4.2 percent due to the record growth in business process outsourcing firms and Philippine Offshore Gaming Operators (POGO).
However, Colliers noted an 18 percent improvement in office transactions last year, with companies taking up 422,000 sq.m. of space, higher than the 357,000 sq.m. in 2020. Transactions more than doubled by the fourth quarter to 134,000 sq.m. from 62,000 sq.m. in the same period in 2020.
Metro Manila accounted for 81 percent of last year’s office transactions, while the rest included transactions in Cebu, Iloilo, Pampanga, Laguna, Davao, Batangas, Rizal, and Misamis Oriental.
While the health concerns brought about by the COVID-19 [pandemic] are already being addressed, we’re more confident. That means there’s more focus now in terms of reviving the economy and the businesses,” Andaya said.
Traditional occupiers and outsourcing firms took up the bulk of office spaces last year and are expected to continue to drive growth this year.
Pogos to return?
Should POGOs return to the market, Colliers Philippines said the office vacancy rate is seen to decline “significantly from 19 percent to just 12 percent until 2025.”
POGOs, which operate online casinos for the China market, occupied at least 1.3 million sq.m. in office spaces before the pandemic.
POGOs now only occupy 677,000 sq.m., taking up only 5 percent of Metro Manila’s office stock as of end-2021 versus its 11 percent market share in 2019.
Many POGOs, which employ mostly Chinese nationals, closed shop in the Philippines due to the higher taxes and travel restrictions.
Taxes and uncertainty of next president’s policy
Beginning 2022, licensed offshore gaming firms are taxed 5 percent of their gross gaming revenues, while foreigners employed by offline gaming companies or their service providers need to pay 25 percent withholding tax on their gross income.
Andaya noted that the “most important” factor that affected POGO operations is the “Philippine-China relations with respect to the level of tolerance in allowing this industry to prosper.” Many POGOs are waiting for clarity on the next administration’s policy regarding the industry.
“The result of the Philippine elections can tell us what’s going to happen with this one,” Andaya said.
At the same time, Colliers said the economic recovery will be key to driving more office transactions.
“I think the pressure to revive the economy and the pressure to revive the businesses is greater than the impact of the national elections, the uncertainty that comes with it and that is because some of the important legislation required to stimulate the economy were already passed or are being finalized,” Andaya said.
Tags: #officevacancyrates, #oversupply, #pandemiclockdowns, #POGOsandBPOstoreviveit, #business