Philippines’ lacklustre office absorption dampens residential demand

Residential vacancy increased from 15.6% in Q4 2020 to 16.3% in Q2 2021.

A recent report by Colliers reveals that office space absorption in the Philippines remained negative for the fourth consecutive quarter in Q2 due to lease cancellations, early terminations and non-renewals. Net take-up totaled -52,800 square metres (-568,100 sq feet) as traditional, outsourcing and offshore gaming firms all continued to vacate office space. This was down 142% compared to the 125,200 sq metres (1.3 million sq feet) of net take-up posted in Q1 2020. 

Here’s more from Colliers:

Among the firms taking up space were e-commerce companies such as Amazon and Shopee, outsourcing firms and data centres. We expect firms from essential segments such as healthcare and logistics to lead office take-up in the next 12 months. 

In our view, office leasing recovery in 2021 is likely to hinge on the pace of COVID-19 inoculation, especially the inclusion of outsourcing employees and economic zone workers in the priority list; the implementation of the government’s recovery package including the social amelioration program (SAP); as well as developments in the recently enacted tax reform law. 

In the residential sector, we recorded delivery of 4,415 units in Q2, up from only 1,665 units completed in Q1 2020. We expect completion to further increase with about 10,387 units scheduled for completion by year-end. The Bay Area and Fort Bonifacio are likely to account for 86% of new supply. 

Subdued office space absorption also likely affected residential demand. This has resulted in residential vacancy increasing to 16.3% in Q2 from 15.6% in Q4 2020. We see vacancy rising further to 17.2% by year-end due to the significant number of new completions. 

Launches in the pre-sales market dropped by 43% YoY to only 4,404 units. Take-up during this period reached 5,358 units, also down 53% YoY. During the quarter, mid-income to luxury projects continued to dominate, accounting for 97% of launches and 98% of take-up. Given the minimal effect the economic slowdown has had on demand for projects in these price segments, we believe higher-priced joint venture developments between local and foreign developers offering innovative facilities and amenities are likely to help drive demand until the end of the year. We also expect the government vaccine rollout and the subsequent re-absorption of office spaces to help prop up residential demand.