Real estate investors are closely studying the Philippine office market, which is currently undergoing significant changes due to global shifts in work patterns. The Philippines is not immune to these changes, which have resulted in some challenges. Leechiu Properties has released reports that provide insights into the current state of office vacancies, which could be useful for potential investors.
Vacancy rates show a slower recovery than expected
Leechiu Properties, a real estate firm, has recently revised its forecast for the office market in the Philippines. According to the new prediction, the vacancy rate is unlikely to decrease to 6% until 2028, which is a year later than the previously estimated recovery by 2027. This delay indicates that there are deeper underlying issues within the market, rather than just a temporary fluctuation. For investors, this means that they need to adjust their expectations and be prepared for a longer wait for returns from office property investments.
Challenges in absorbing new and existing office spaces
Despite a notable decrease in the construction of new office buildings, the Philippine market is struggling with a significant surplus of office space. This surplus is due to both newly built properties entering the market and companies reducing the space they occupy. As of the end of the first quarter, the Philippines reported a staggering 3.2 million square meters of vacant office space, with almost half located in buildings less than five years old. This creates a buyer’s market where investors might find lower prices and more negotiating power, although there is a risk of prolonged vacancies.
Contracting demand amidst rising opportunities
During the first quarter of this year, there was a significant increase in office space contraction, with a 43% rise compared to the same period in 2020. This was the highest level of contraction since the second quarter of 2020, driven primarily by the expiration of leases. Despite these contractions, there was a positive development: there was a 30% increase in ‘live demand’ for office spaces, which was the highest level post-COVID. This rise was mostly fueled by traditional companies and government agencies, indicating a strong underlying demand that could stabilize and eventually uplift the market.
Foreign investors looking to invest in the Philippine office market are presented with both challenges and opportunities. While the current surplus of office space gives investors more options and potentially better deals, it also requires careful strategic planning and a good understanding of local market dynamics. The increasing demand for office space suggests that the market is on a recovery trajectory. For those with the right insight and patience, investing in Philippine office real estate could still be a wise decision.
Investors who want to take advantage of these trends should concentrate on areas where demand is increasing and look into properties that provide modern amenities and flexibility to attract tenants for an extended period. As usual, a profitable investment will require a thorough comprehension of both the macroeconomic factors and the micro-market conditions.
