2022 Philippine office demand registered at 975k sqm. surpassing the combined demand of FY2020 (389k sqm.) and FY2021 (540k sqm.), according to a mid-December Leechiu Property Consultants (LPC) study.
The IT-BPM sector accounted for the lion’s share of 2022 take-up at 466k sqm. despite the dominance of the hybrid set-up which allowed some employees to work from home and the rest, on site. Traditional office occupiers likewise registered a substantial take-up of 448k sqm. after many companies mandated the onsite presence of their employees.
From only 124k sqm. in Q1 highlighted by widespread Omicron COVID variant infections, office demand peaked in Q3 at 313k sqm. after political and other uncertainties were resolved by the May presidential elections. Take-up leveled off in Q4 to 283k sqm. but with growth likely to continue in 2023 given a notable live requirement of 352k sqm., according to LPC CEO David Leechiu. Live requirements are office transactions in various stages of completion.
“Up to mid-2022, it was difficult to visualize year-end demand hitting close to the 1 million sqm. mark,” Leechiu recalled. “The results have exceeded expectations but we can’t put our guard down just yet.”
The sustained demand for office spaces is tempered by significant vacancies in some business districts and additional supply from newly buildings to be completed in 2023. The latter are mostly projects started in the heady pre-COVID days of 2019 and coming onstream only now following construction and other delays.
“We thus will start the new year cautiously optimistic about the prospects of the real estate industry in the next 12 months,” clarified Leechiu.
Of the total 2022 office demand, Metro Manila accounted for 724k sqm. or around 74% with BGC taking up 232k sqm. and Makati, 198k sqm. Of the remaining 26% representing transactions outside of Metro Manila or 250k sqm., Cebu City took up 92k sqm. followed by Davao, at 50k sqm. and Clark at 49k sqm.
Mikko Barranda, LPC director for Commercial Leasing, qualified that the IT-BPM sector, the largest Phl employer, hired an additional 265,000 employees in the last three pandemic years. In 2021 and 2022 alone, 120,000 employees were recruited annually. Nevertheless, IT[1]BPM office demand only surged from 2021 to 2022 by 68% due to majority of the employees returning onsite for work.
By all indications, IT-BPM firms will continue operating onsite in the next few years to maintain efficiencies even as they allow a number of employees to work from home, said Barranda.
He explained: “We can thus expect office demand from this sector to continue growing, moreso because IT-BPM industry studies estimate that 1.1 million more full-time employees (FTEs) will be hired in the next six years. This could mean, at the least, an additional annual 476k sqm. of office space requirement up to 2028.”
For 2023, IT-BPM demand of 210k sqm. or 44% is already visible, he emphasized. Meanwhile, vacancy rate across Metro Manila is 18% with Makati having the highest level at 572k sqm.; Bay Area, 570k sqm.; and Ortigas/ Pasig/ Mandaluyong, 457k sqm. Contractions have slowed down from a peak of 253k sqm. in Q4 2020 to 106k sqm. in Q4 2022.
When 2020 up to 3Q 2022 demand is compared side-by-side with contractions, cumulative net demand is at 361k sqm. The IT-BPM sector registered a cumulative net demand of 628k sqm in the last three years, marking an 8% increase in their 7.5 million sqm. footprint.
CAPITAL VALUES
In the last three pandemic years, capital values have also remained resilient due to healthy office and residential take-ups, according to Tam Angel, director for Investment Sales. Nevertheless, the growth rate has flattened in affected business districts in the face of rising interest rates and significant office vacancies leading to rental rates trending sideways.
Despite these challenges, there has been a noticeable increase in the pipeline of capital market transactions. Investors see strong and growing demand in both the residential and office sectors, which will sustain capital values in the near term and prod them to trend upwards in the long term.
RESIDENTIAL MARKET
The total number of Metro Manila residential units sold experienced steady growth from Q1’s 5,852 units to Q4’s 11,114 units, which was 16% higher than the previous quarter, according to Roy Golez, director for Research and Consultancy. Nevertheless, FY 2022 values are still 7% lower than the 2021 level.
In terms of number of units sold, the upper middle income segment comprised of units from Php 4 million to Php 7 million moved quickly at 13,000 units annually from 2020 to 2022; followed by upscale units priced from Php7 million to Php12 million at 9,000 units annually. High[1]end and luxury units have been consistently selling in the last three years.
Average capital values of units in Makati, BGC and Taguig have risen up to 20%. But rents in Alabang, Ortigas and the Bay Area are still low compared to the pre-pandemic levels.
Buyers also registered strong demand for upscale Second Homes in exclusive gated resort communities in Batangas, Bataan and Cavite. In Peninsula de Punta Fuego in Nasugbu, Batangas, properties were selling for Php 80k to Php 125k per sqm or 220% higher than 2019 range of from Php 14k to Php 50k per sqm. Other resort communities that surged in value were Kawayan Cove to Php 45k to Php 93k or 220% more than 2019 values; Anvaya Cove now at Php 25k to Php 55k or 116% more than its 2019 values.
Leechiu commented: “The IT-BPM sector continues to stabilize and anchor the economy – not only in Metro Manila but also in other key cities of the country. With traditional office occupiers now also enjoying recovery, real estate is likely to surpass its remaining obstacles in 2023.”