Firms recalibrate hybrid space needs as office rental rates fall

PHILIPPINES: It’s a buyer’s market out there as the prolonged quarantine in Metro Manila forced businesses to be more cautious in recalibrating their space requirements to meet the demands of a hybrid work environment.

Office vacancies in the metropolis are reportedly rising to 14% as of the third quarter of 2021 or near equivalent to the 2009 global financial crisis levels when the real estate market bottomed out, according to a leading property consultancy study.

Vacancy levels are expected to continue to rise with the exodus of major tenants like offshore gaming operators.

On the other hand, corporate space-hunting employers can expect landlords to lower office rental rates from 15% to 30% this year, particularly in newly developed office spreads such as the corporate districts in Pasay City. Average rents in the Metro Manila office market closed at PH 1,120 (USD22) per square meter per month in 2020, slightly lower than the Php1,150 (USD23) per square meter in 2019.

Cushman & Wakefield head of research, consulting and advisory services Claro Cordero said that while escalating vacancies are likely in the short term, it is expected in the long term that office space demand will normalize as space density expands to address prescribed health protocols in a blended or hybrid working environment of part-time work in office and part-time work from home workforce arrangement.

Cordero foresaw the business process offshore companies based in the country driving the demand to new levels but bent towards the new scalable and flexible Next Normal office designs

A study conducted by Colliers, a property management firm, also offered some solutions to address the concerns usually raised by corporate renters. The study proposed that developers and landlords adopt flexibility to reduce the investment risks of renters, consider a risk-sharing agreement through tenant improvement allowance, offer fully fitted spaces and highlight building amenities, incorporate post-Covid workplace best practices, and pipeline assessment to manage the supply-driven vacancies by considering provincial locations.

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