Philippine office transactions surge 24%, IT-BPM and government lead: LPC
MAKATI CITY, PHILIPPINES — The Philippine office market showed remarkable resilience and growth in the first half of 2024, with a 24% increase in transactions compared to the same period last year.
According to the property market report by Leechiu Property Consultants, this positive trend is driven primarily by heightened demand from the information technology and business process management (IT-BPM) sector and government agencies.
IT-BPM and government sectors fuel demand
The IT-BPM sector experienced a 13% year-on-year jump in transactions, while government agencies saw their leasing activity increase by over sevenfold from the first half of 2023 to the first half of 20224.
This surge in demand has resulted in a recorded 268,000 square meters (sq.m.) of overall transaction activity for IT-BPM offices, followed by traditional offices with 229,000 sq.m., government offices with 113,000 sq.m., and Philippine offshore gaming operators (POGOs) with 75,000 sq.m.
Notably, most occupiers are gravitating towards newer buildings that are five years old or less.
Metro Manila remains prime location for office space
Metro Manila remains a preferred location for office space demand in the Philippines.
In the second quarter of the year, the Bay Area and Makati City captured a combined total of 155,000 sq.m., representing a significant 44% share of the national demand.
Government activity fueled a massive 68% of the demand in the Bay Area. Outside the capital region, Cebu maintains its position as the provincial leader.
Strong pipeline and live demand
A total of 453,000 sq.m. of live demand was recorded in the Q2 2024 pipeline. Of this total, 298,000 sq.m. came from Metro Manila and 155,000 sq.m. from provincial areas.
In Metro Manila, traditional offices accounted for 51% of this demand, the IT-BPM sector for 41%, and POGOs for 8%.
In contrast, provincial demand was dominated by the IT-BPM sector at 85%, with traditional offices making up the remaining 15%. Notably, 207,000 sq.m. or 46% of the total demand were new requirements recorded in just the last three months.
Record low contraction rate
Contractions decreased by 84,000 sq.m., down by 42% from Q1 2024 to Q2 2024, marking the lowest recorded quarterly contraction since 2022.
Those who let go of space did so due to relocation, downsizing, and consolidation. Only 24% of the vacated spaces were preterminated by existing tenants.
Significant pipeline supply expected
The Philippines anticipates an increase in the supply of office spaces, with an expected addition of 786,000 sq.m. to the current supply by the second half of 2024.
A majority of the upcoming buildings are in Metro Manila, with a projected rise of 516,000 sq.m., while provinces have 270,000 sq.m. in the pipeline for 2H 2024.
However, starting in 2025, office supplies will sharply decline, potentially decreasing by up to 50% annually.
Market outlook and trends
“Live demand gives us optimism, as we see numerous transactions still in the pipeline for the second half of 2024,” said Mikko Barranda.
He also noted that net office demand surged 56% in 1H 2024, but the sector remains under pressure due to fresh supply entering the market in 2H 2024.
Additionally, Barranda highlighted a significant trend: “Majority of traditional offices are relocating and expanding to newer spaces, signaling a shift of flight to quality.”
The Philippine office market is poised for continued growth, driven by robust demand from key sectors and a significant pipeline of new supply.
