LRG expects that office demand will primarily come from the BPO Industry. That’s because around 450,000 sqm of office space will be needed to accommodate the hiring that happened during the pandemic (2020-2021) and the projected increase in BPO personnel post-pandemic (2022 onwards). LRG even noted that some on-line gaming companies have slowly restarted their operations. LRG adds that some tenants are now even looking to add extra space to make it more pandemic resilient. There is also the prospect that provincial office demand and preference for township locations will increase as part of some tenants’ business continuity arrangements in case of lockdowns.
Factors behind the return to office scenario are the observed economic recovery that started in 2021 both here and abroad; the easing of mobility restrictions; back-to-office mandate of the government for PEZA-domiciled companies and the preference of many Filipino companies for physical reporting of employees in the office. Also, the return of the POGOs, the largest office space taker before the COVID-19 pandemic, is also being slowly observed in the market.
As for office rent, LRG’s Research shows that since the COVID-19 pandemic, there has not been a substantial decrease in rental rates and these have remained steady at around Php1000/sqm. On the other hand, vacancy rates almost quadrupled, from 5% in 2019 to 19% as of Q2 2022. This is why rental rates are expected to soften despite the higher inflation as a result of the Russia-Ukraine war, as landlords look forward to leasing out their spaces to tenants who are now ready to go back to a physical office setting.
LRG concludes by mentioning that it is optimistic because the recession suffered by the industry is not market-driven but because of COVID which is an external, artificial shock. This means that recovery is expected to be faster. LRG even projects that the long-term occupancy average of 95% might even be breached over the next 12-18 months.