Due to the POGO ban, annual net absorption dropped to 1,500 sqm in 2024, down from 271,250 sqm in 2023, according to Cushman & Wakefield.
The office rental market of Metro Manila is facing continued pressure, with rents expected to fall even further in 2025 due to a growing oversupply of vacant office space. According to Cushman & Wakefield's Asia Pacific Outlook 2025 report, the average office rent in the region is forecast to decline by an additional 3.2 percent in 2025, following a 2.8 percent drop in 2024.
The decline in office rents is primarily attributed to the large volume of vacant spaces in Metro Manila’s commercial real estate market. Cushman & Wakefield reported that the average headline rent for prime and Grade A office spaces in Metro Manila stood at P1,003 per square meter per month in the third quarter of 2024. This is a decrease from P1,010 per square meter per month in the second quarter of 2024, and down from P1,041 per square meter per month in the same period the previous year.
Vacancy Rates Hit 20-Year High
Alongside the drop in rents, Metro Manila's office market is grappling with a sharp rise in vacancy rates. The latest data revealed that the vacancy rate for office spaces in the capital reached 18.2 percent in the third quarter of 2024, the highest it has been since the second quarter of 2004. The vacancy rate is up by 136 basis points compared to the same period last year, a worrying indicator for landlords and property owners.
The increase in vacancies is largely due to a combination of factors, including the total ban on Philippine Offshore Gaming Operators (POGOs), which has led to a significant shift in space demand. POGOs, once a major tenant in Metro Manila’s office market, have faced stricter regulations in recent years, contributing to the exodus of tenants and an oversupply of space.
Declining Net Absorption
One of the key metrics impacted by the current market trends is net absorption, which refers to the change in occupied office space over a given period. In 2024, net absorption is expected to plummet to just 1,500 square meters, a significant decrease from the 271,250 square meters absorbed in 2023. The sharp drop in absorption is linked to the reduction in office space demand from POGOs and other sectors affected by the pandemic and regulatory changes.
However, Cushman & Wakefield forecasts that from 2025 to 2029, the annual net absorption rate will see a positive turnaround, with an expected increase of 36 percent compared to the 2020-2024 average. This recovery is expected to be driven by the IT-BPM (Information Technology and Business Process Management) sector, which continues to show strong demand for office space, particularly for global capacity centers (GCCs). Additionally, the growing trend of “flight-to-quality,” where tenants seek more modern, collaborative, and sustainable office environments, will play a key role in driving future absorption.
Impact of Remote Work and Flexible Arrangements
Despite the anticipated recovery in net absorption, the office rental market will continue to face challenges in the short to medium term due to ongoing shifts in work arrangements. The full implementation of the CREATE MORE Act, which promotes flexible work setups for IT-BPM companies, could further impact office space demand. The law encourages remote and hybrid work models, leading to potential space rationalization as companies reassess their office requirements.
Cushman & Wakefield also cited the total ban on POGOs as a continuing factor in the high vacancy rates. With POGOs no longer occupying large amounts of office space in Metro Manila, landlords will need to find new tenants to fill these vacancies, which may take time due to the slower recovery of demand from other sectors.
Reduced New Supply and Slower Lease Rollovers
While vacancy rates are expected to remain elevated, Cushman & Wakefield forecasts a slowdown in the supply of new office space in the coming years. An average of 138,000 square meters of new office space is expected to be delivered annually over the next five years. This is a sharp decline of 23 percent compared to the projected new supply for 2024 and a staggering 80 percent lower than the average new supply in the years prior to the COVID-19 pandemic.
As the supply of new office space decreases, the overall absorption rate is expected to improve, with more spaces being taken up in the medium term. The reduced new supply will help ease the oversupply situation, although vacancy rates may remain high for some time. The lack of new developments will also reduce the risk of lease rollovers, though at a slower pace than anticipated.
Outlook for 2026 and Beyond
Looking further ahead, Cushman & Wakefield projects that the office rental market in Metro Manila will begin to recover by 2026. Headline rents are expected to grow at an average annual rate of 3.5 percent from 2026 to 2029, signaling a gradual recovery for the sector as the demand for quality office spaces rebounds.
As businesses adapt to new ways of working and office space requirements evolve, the market will likely continue to experience shifts. The growing preference for innovative office designs, sustainable practices, and modern amenities will influence the future landscape of Metro Manila’s office rental market.
While Metro Manila’s office rental market faces challenges in the short term, including elevated vacancy rates and declining rents, a recovery is expected, driven by demand from the IT-BPM sector and a growing focus on quality office spaces. However, flexibility in work arrangements and regulatory changes will continue to shape the market dynamics moving forward.
Read related article: POGO Exodus Leaves 274,000 sqm of Office Space in 2024
Comments