Office vacancy fall to single digits seen in 2027

Office vacancy fall to single digits seen in 2027

REAL ESTATE firm CBRE said that it projects the office market vacancy rate to be in the single digits by 2027, pushing back its earlier estimate of 2026, after a weaker-than-expected performance in the last quarter of 2023.

“(In) the quest (for) single-digit vacancy, we initially projected that to happen in 2026, but because the fourth quarter was not as strong … our projection of a 5.4% vacancy will (take place) in 2027,” CBRE said.

It now sees vacancies in 2024 to fall to 18.8%, to 15.1% in 2025, and to 10.6% in 2026.

According to CBRE, office vacancies in the last quarter of 2023 rose to 19.4% from 18.8% in the third quarter. The trend was most pronounced in the so-called Bay Area (33.4%) and Alabang (30.9%).

It added that the increase in vacancy was also due to projects like Megaworld’s Uptown Eastgate (69,000 square meters) in BGC and Filinvest’s Studio 7 (14,500 square meters) in Quezon City.

“Fourth quarter demand was not able to offset the significant reinfusion of both buildings into the market to stem an increase in overall vacancy,” the firm said.

CBRE said the 5.4% vacancy rate by 2027 will depend on the performance of the information technology and business process management (IT-BPM) industry, with an assumption of full-time employee growth of 8.5%.

The IT-BPM industry is also expected to account for 65% of real estate demand.

CBRE also said that the target assumes that 70% of the IT-BPM take-up will be in Metro Manila and that the vacated spaces will not exceed 200,000 square meters each year.

CBRE Philippines Country Head Jie C. Espinosa said that the projections for the office vacancy rate take into account the work from home (WFH) arrangements being proposed by the House of Representatives, in a measure that will amend the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

Currently awaiting second reading, the CREATE MORE (CREATE to Maximize Opportunities for Reinvigorating the Economy) bill proposes to allow IT-BPOs registered with an investment promotion agency to undertake WFH schemes and still enjoy incentives.

Mr. Espinosa said WFH is likely to persist even with many business process outsourcing (BPO) companies encouraging onsite work.

“The WFH situation will never go away as… some clients want to have that flexibility, but I think the majority of the companies who are operating here are encouraging employees to go back to the office because they can collaborate and do more,” Mr. Espino said.

He said that in the third-party outsourcing segment, or contact centers, 70% are back at the office, while 30% still offer work flexibility.

Aside from the IT-BPM industry, he said that CBRE is also looking at the growth of traditional offices in creating demand for the segment.

“In the past four to five years, we noticed that the traditional or non-BPO take-up in the market has been solid, so we have to take that into account,” Mr. Espinosa said. — Justine Irish D. Tabile