OWNERS of older office buildings will need to upgrade and inject sustainable features into their facilities to compete for quality tenants and lure employees back after months or years of remote working.
In a competitive business environment, officials of property consulting firm KMC Savills on Thursday, Oct. 19, 2023, said office refurbishments are expected to help retain and attract new tenants. The upgrade does not only boost the company’s bottom line but also brings value back to the property.
In an online briefing, Joshua de las Alas, associate director at KMC Savills, underscored the limited availability of environmentally conscious developments or green buildings in Cebu, which are now preferred by multinational companies.
“There really is a flight-to-quality. Many are looking for more green buildings, better quality buildings, and this is just not something that you can easily find in Cebu at the moment,” de las Alas said.
The phenomenon known as flight-to-quality refers to the growing preference among tenants and investors for high-quality, modern, and well-equipped office spaces.
“Majority of the older buildings are currently struggling in terms of vacancy rates, and I think one of the many ways to do this is really by upgrading the space that they have, mainly through probably refurbishing or going through a more sustainable route,” said de las Alas.
“The newer buildings, they’re not really worried about the vacancy rate. It’s more on the older buildings that’s actually being challenged right now,” he added.
Michael McCullough, managing director at KMC Savills, emphasized the urgency of renovating older buildings, particularly in light of the modern workforce’s preference for environments that evoke a sense of home and comfort.
“The only way to get the employees back to their physical office is to have a good facility like their home. It should be a facility where they will enjoy the balance of work and wellness. Companies and developers are seeing this, and that’s where they are headed,” he said.
McCullough reiterated that newer buildings tend to find occupants more easily, whereas older buildings often struggle with high vacancy rates.
He said buildings that are more than two years old and are Leadership in Energy and Environmental Design or Leed Gold certified, for example, are running at roughly 90 to 95 percent occupancy, while the rest of the markets are experiencing as low as 80 percent occupancy.
Leed Gold-certified buildings meet energy, lighting, water, and material standards and employ sustainable strategies.
“You’re not just attracting the best brands, but you’re also achieving better returns because you’re getting better occupancy rates,” he said.
Most multinational companies are now mandated to move into sustainable buildings or space, a shift that compels developers to evaluate their office assets, knowing that it’s no longer an option but the future of work.
Moreover, Cha Carbonell, chief operating officer at KMC Savills, said many developers are now open to investing in a future-proof building as they see the benefits they bring to their property.
“Many developers are concerned with the capital expenditure of building a sustainable building and getting all the accreditations... But what we’ve seen now, for example, a Leed Gold building, is that they are able to manage to save a lot on their operating cost, which can be passed on to their tenant. And that’s really a very good selling point for developers to attract the best or the types of tenants, a good quality tenant in their building,” she said.
Metro Cebu, according to KMC Savills was able to rebound in the first half of 2023 with a net absorption of 81,500 square meters (sq.m.) outpacing the new supply of 78,000 sq.m., but the market’s vacancy rate dropped to 20.9 percent from 21.8 percent in the fourth quarter of 2022.
Cebu Business Park and Cebu IT Park led the rebound. Cebu’s average net rental rate stood at P545 per square meter as of the first semester of this year.
“The (Cebu office) market is expected to withstand any supply pressure as the Information Technology-Business Process Management sector increases its presence in regional cities. Due to the recovery in demand, Cebu’s vacancy rate is forecasted to return to pre-pandemic levels by 2025,” said John Corpus, executive director at KMC Savills.
Cebu has a current office stock of 1,253,722 sq.m. Some 129,356.4 sq.m. are in the pipeline of development from 2023 to 2025.