The office vacancy rate in the Philippines surged to an all-time high of 19.8 percent in 2024, driven largely by the exit of Philippine Offshore Gaming Operators (POGOs). Real estate market firm Colliers Philippines predicts that this vacancy level will climb even further to 22 percent in 2025, exacerbated by the influx of new office space coming onto the market.

According to Colliers’ latest property market report, the vacancy rate for office spaces in Metro Manila increased from 19.3 percent in 2023 to 19.8 percent by the end of 2024. This rise marks a troubling trend for the office market, with the fourth quarter alone seeing a dramatic 73 percent spike in vacated office space compared to the previous quarter. Around 334,000 sqm. of office space were vacated from September to December 2024, a significant jump from 193,000 sqm. in the previous quarter.

Net absorption, which measures the demand for office space, also saw its first decline since 2021, dropping by 20 percent to 185,100 sqm. in 2024. This was further compounded by a 70 percent drop in new supply, with only 6,000 sqm. of new office space added to the market in the fourth quarter.

Colliers attributes much of the high vacancy rate to the exit of POGOs, whose demand for office space had been a major driver of market activity in recent years. Alongside this, the non-renewal of pre-pandemic leases further contributed to the rise in vacancies. However, the firm noted that demand for office space from traditional sectors and the outsourcing industry helped mitigate the impact of these closures, preventing a sharper decline in market activity.

Despite a notable slowdown in office space completions during 2024, Colliers expects vacancy rates to peak in 2025, projecting that the figure could rise to as high as 22 percent due to upcoming office space supply, which includes an additional 655,880 square meters of office space expected to come online this year.

Opportunities in a tenant-favorable market

Kevin Jara, Colliers’ director for office services, highlighted that the current office market presents an opportunity for both developers and tenants. With a large volume of available office space, tenants are in a favorable position to secure attractive lease terms. Jara emphasized that developers should focus on enhancing the appeal of their spaces to meet the evolving needs of the modern workplace.

One key recommendation for developers is to refurbish aging or vacated office spaces, making them more attractive to prospective tenants. Repurposing these spaces into showrooms is another suggestion, as it allows tenants to visualize potential layouts, reducing demolition costs and enhancing the attractiveness of older properties.

Colliers also advised developers to consider offering tenant improvement allowances, a financial incentive that helps tenants customize office spaces according to their needs. These strategies are seen as vital for older properties to remain competitive in a market increasingly dominated by newer office spaces.

While Metro Manila struggles with high vacancy rates, Colliers reported that provincial office markets remained relatively resilient. Emerging locations in the provinces are gaining traction, with sustained transaction volumes and increasing demand for office spaces outside the capital. This shift in occupier demand is expected to continue as businesses look beyond Metro Manila for office space.

Market outlook for 2025

Colliers forecasts that the office market in Metro Manila will experience a slight recovery in 2025, with net take-up projected to reach 150,000 square meters. The Bay Area, Quezon City, and Makati Fringe areas are expected to account for half of the new office supply in 2025. As for lease rates, Colliers predicts that rents will remain stable in 2025, with primary Central Business Districts (CBDs) experiencing rental recovery. In contrast, secondary CBDs, especially those impacted by the POGO ban, may see marginal declines in lease rates.

Overall, Colliers Philippines' report underscores a challenging environment for the office market in 2024, but also highlights opportunities for developers and tenants to capitalize on current market conditions. While vacancy rates are set to climb further, strategic efforts by developers to enhance the appeal of their properties and negotiations by tenants could help navigate the evolving market landscape in 2025.