Landlords are forced to offer rental concessions to make tenants sign up for term renewals
As lockdowns recur in the Philippines due to spiralling COVID-19 cases, office vacancy rates hit record highs, forcing landlords in the capital region to offer unusual rental concessions to persuade their corporate tenants to stay, reported The Phnom Penh Post.
According to property consulting firm KMC Savills, about one million square metre of Metro Manila’s grade A office space would become vacant, considering the increase in new office stock but sluggish demand.
KMC Savills’ second-quarter office property report also indicated that grade A office vacancy rate in the metropolis may surge to nearly 20 percent by next year, a record high. The vacancy rate in the first semester was recorded at 13 percent.
Michael McCullough, managing director at KMC Savills, said that this would cause a 15 to 20 percent downward pressure on rental rates.
“Our conversations with our clients right now are – either the landlord gives me a deal I want, or we work from home, or I go to another building or a cheaper location,” he added.
Research also noted that non-renewals and pre-termination of leases continued to decrease demand, while office supply had jumped and was expected to continue increasing through 2024.
“We have observed a shift away from dense work areas to work-from-home or hub-and-spoke models all over the country. Without new tenants entering the market, there seems to be a supply-demand imbalance. This will keep leasing conditions in the occupiers’ favour in the short term, resulting in flight to quality and discounted premium space,” the research said.
Moreover, office vacancies are also partly caused by the exodus of Philippine offshore gaming operators, seeing the implementation of regulatory restrictions and lockdowns across borders.
In the city of Makati, which has several old buildings, McCullough noted it’s the first time for office vacancy rate to hit double-digit levels at 10.7 percent in the second quarter. Central business district Ortigas is nearing a vacancy rate of 20 percent, trending towards 30 percent, while commercial hub Bonifacio Global City (BGC) is a stable sub-market given its high-quality occupiers.
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