METRO Cebu saw office vacancy rising to 22 percent in the first quarter of this year from 19.9 percent at the end of 2020.
The rise in vacancy was due to higher lease cancellations, pre-terminations, non-renewals and new supply of about 50,600 square meters (sq.m) that was completed during the period, according to property consultant firm Colliers International Philippines.
Among the submarkets, Cebu Business Park, Cebu IT Park and Mactan posted substantial vacancies, at 21 percent, 24 percent and 38 percent, respectively.
“In 2021, we project net take-up to reach 33,000 sq.m. with new supply at 156,400 sq.m. This should result in vacancy further rising to 26.4 percent which would be a new all-time high for Metro Cebu,” Colliers said.
Colliers recorded about 10,800 sq.m. of office deals in the first quarter this year. This is 154 percent higher compared to the 4,300 sq.m. posted in the first quarter last year.
About 64 percent of the deals came from outsourcing firms, followed by traditional occupiers at 34 percent.
Despite the challenges, the IT and Business Process Association of the Philippines said the outsourcing sector still posted employment growth in 2020 of about 23,000 people, bringing the total to 1.32 million. This was primarily due to more jobs created by resilient industries such as e-commerce and healthcare, in Metro Manila as well as in Cebu.
Notable office deals recorded in the first quarter came from outsourcing and traditional companies including 24/7 InTouch Philippines, Aldesa BPO, Nokia and the Philippines Department of Human Settlements and Urban Development. The bulk of these transactions were in Cebu Business Park.
Rental
Moreover, Colliers said Metro Cebu’s average office rents declined by 2.7 percent quarter-on-quarter in the first quarter of 2021.
“Colliers expects a further correction in lease rates, especially in submarkets with substantial vacancies such as Cebu Business Park, Cebu IT Park and Mactan,” the firm said. “However, we believe that pent-up demand post-Covid will likely gravitate towards these locations due to the wide availability of Peza-registered and fully fitted spaces. Outsourcing and traditional firms can take advantage of the discounts offered in the market in exchange for longer lease terms.”
In 2021, Colliers sees lease rates dropping by about 10 percent before a slow recovery starting 2022.
“In our opinion, office leasing recovery in Metro Cebu will likely depend on the success of the vaccine rollout,” the firm said.
At present, Metro Cebu has an estimated 160,000 business process management workers, the largest outside of Metro Manila.
Supply
Meanwhile, from 2021 to 2025, Colliers sees the annual completion of about 88,800 sq.m. of new office space, up eight percent from its previous forecast of 81,900 sq.m. at the end of 2020.
Cebu Business and IT Parks are likely to account for 44 percent of the new supply during the period.
Colliers advised tenants to take advantage of the opportunity to negotiate lease terms to still continue operating through the pandemic.
Given the 156,400 sq.m. of new supply likely to be completed in 2021, Colliers encourages tenants to maximize favorable market trends by negotiating longer lease terms, lower rates and other forms of concessions such as delayed escalation of rents, fit-out financing, rental deferment, longer fit-out periods and other incentives.
Companies in Metro Cebu with long-term lease plans should also maximize the opportunity to transfer to higher quality buildings in major business districts at a discount. / KOC