OFFICE LANDLORDS may find it difficult to proceed absorbing occupancy-related costs and lengthening concessions to tenants as borrowing costs, inflation, and energy prices rise, in line with CBRE Philippines, citing results of a survey of developers.
“They will’t hold on to this endlessly with rising borrowing costs and in addition pressure from inflation and energy costs, especially if we’re going to see this crisis form of be prolonged and stretched out,” Alec Saubier, associate director of office leasing at CBRE Philippines, said during a briefing on Monday. “So, in essence, they’ll’t hold on endlessly.”
The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) raised the goal reverse repurchase rate by 25 basis points to 4.5% at its policy meeting last week, effectively ending an easing cycle.
The BSP’s rate increase was based on expectations that oil prices would remain elevated within the near term, with spot prices near $100 per barrel, while inflation risks persist. In March, headline inflation accelerated to 4.1%, exceeding the central bank’s forecast range of three.1% to three.9% and breaching its 2% to 4% goal band.
“Six out of the seven major developers that we interviewed or ran the survey said that they are going to hold on to this, try not to maneuver CUSA (common use service area) rates in accommodation to their tenants out there,” said Zeth Michael Soria, director for tenant representation at CBRE Philippines.
Nevertheless, he said this stance has begun to shift following recent increases in power rates.
“But just last week, when the BSP rates hiked, the sentiment form of modified,” he said.
The firm said office emptiness stood at 19.5%, reminiscent of nearly 1.80 million square meters, with 56% consisting of vacated stock, indicating continued pressure on landlords to retain tenants. The remaining 44% consists of unleased space.
Mr. Saubier said landlords proceed to prioritize tenant retention, noting that “occupancy is king. Money is king. So, whatever they’ll do to retain tenants, we’re still seeing that behavior from the landlords.”
This has resulted in rent concessions, with “a 9% average reduction from last yr’s rent and an overall 12% reduction from the primary offer,” he said.
On the demand side, Mr. Saubier said occupiers are specializing in overall costs, noting that “decisions ought to be anchored on total occupancy costs and never headline rent.”
He added that workforce considerations remain critical, saying “workforce geography will likely be crucial and rent arbitrage is not going to have any value if there may be attrition or there isn’t a labor in that specific market.”
Mr. Saubier also said tenants are benefiting from current conditions, noting that “a whole lot of occupiers will attempt to reap the benefits of current climate, current market conditions… attempt to lock in favorable terms now.”
Currently, absorption pace ranges from 95,000 to 100,000 square meters, while CBRE said the best average pace ought to be between 200,000 and 300,000 square meters.
Metro Manila’s vacated spaces stand at 1.01 million square meters, though this doesn’t yet indicate a return to pre-pandemic emptiness levels, in line with CBRE.
In the primary quarter, the absorption rate was recorded at 91.21%, barely lower than 91.67% in the identical period last yr. Essentially the most recent peak was in 2024, when absorption reached 118.9%. — Juliana Chloe A. Gonzales