Metro Manila office rental prices decline despite improved vacancy rate

Vacancy rate in Metro Manila’s office market improved in the second quarter of 2024, yet rental prices for office spaces have continued to decline since 2023, according to real estate services and investment firm CBRE Philippines.

“This may look good on the upper hand, but zooming into the prices of each sub-district, we have been noting a trend of declines or reductions in rates as well,” CBRE Philippines Research Head Samantha Laureola said during a briefing last week. 

Metro Manila’s fair market rents (FMR), which represent the typical rental prices for office spaces, have decreased by 2% to 19% across various sub-districts from the first quarter of 2023 to the present. 

The Bay Area’s FMR fell 19% from the first quarter of 2023, followed by a 13% decrease in Makati A&B premium office buildings. Alabang also went down 10%, North Bonifacio declined 3%, and Makati Prime went down 2%.

Meanwhile, Quezon City rose 9% and McKinley inched up by 6%. Ortigas also increased by 2%, and Bonifacio Global City (BGC) rose by 0.4%.

“So lower rates, potentially more attractive lease structures for clients, higher demand, and lower vacancy overall,” she added.

The vacancy rate went down to 17.8% in the second quarter of 2024 from 19.7% in the same period last year.

CBRE also revised its initial forecasted vacancy rate from 18.8% to 22.6% by the end of the year due to the Philippine Offshore Gaming Operators (POGO) ban. 

Makati Prime had the highest FMR in the second quarter of this year at P1,289.01, followed by BGC at P1,170.88, while North Bonifacio and the Bay Area logged P1,076.88 and P702.64, respectively. 

Makati A&B recorded an FMR of P789.40, McKinley at P834.06, Ortigas at P764.39, Alabang at P671.40, and Quezon City at P735.35.

“Lower FMR for most of the major Metro Manila markets as developers continue to provide aggressive rates to spur transactions,” the firm said.

On a quarter-on-quarter basis, CBRE Philippines Director of Advisory and Transactions Services Garri Amiel Guarnes said the Bay Area had the highest reduction of 7.3% in FMR in the second quarter of 2024.

“That’s a lot to do with the transactions, government take-ups within the Bay Area, and the high number of square meters being taken by the government offices,” he said.

The office market logged 257,200 square meters (sq.m.) of office leases for the second quarter, driven by government take-ups that accounted for a 26% share. 

Some of the biggest government leases during the first half went to Filinvest, including the National Bureau of Investigation in Cyberzone Bay City Towers and the Department of Trade and Industry in Filinvest Buendia. 

Despite CBRE’s expectation that the vacancy rate by year-end will hit 43% due to the POGO ban, the Bay Area was the top district for the second quarter of 2024 with 83,400 sq.m. of leases in the country.

SERVICED OFFICE VACANCY RATE HIT 20.6%

Meanwhile, the vacancy rate of Metro Manila’s flexible market — comprising coworking spaces, serviced offices, and short-term leases — surged 20.6% to 7,000 vacant seats in the second quarter due to the opening of new sites across the area, CBRE Philippines said.

This figure was 6.75% lower than the 14% vacancy rate in the same period last year, and lower than the 17% recorded last quarter.

CBRE Senior Research Analyst Angela Joyce Sumalinog said the increase in vacancy was driven by the opening of new sites in Metro Manila, where Fort Bonifacio recorded the lowest vacancy rate at 11%.

North Bonifacio’s vacancy rate fell to 10% in the second quarter, while BGC also decreased to 10%. McKinley’s vacancy rate rose to 18%.

The vacancy rate in Makati increased to 19%, Ortigas doubled to 24%, and Quezon City reached 22%. Meanwhile, the Bay Area and Alabang saw increases to 25% and 52%, respectively.

“Another factor that we’re seeing that can affect the flex market would be comparing serviced offices versus vacated spaces with quality fit-outs. The former would often have a premium on rates of 50% to 80% over three to five years,” Ms. Sumalinog said.

CBRE reported that Metro Manila rates range from P5,000 to P36,000 per seat per month.

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Source: Business World

Direct liability of sublessor to lessor

In the Philippines, even though the sublessee is not a direct party to the contract between the lessor and the lessee, the sublessee still bears direct liability to the lessor for actions related to the use and preservation of the leased property. Specifically:

• Use and Preservation: The sublessee must adhere to the terms stipulated between the lessor and the lessee regarding the use and maintenance of the property. If the sublessee fails to do so, the lessor can take legal action directly against them.

• Exception to the Rule: While the general rule in contracts states that the sublessee can only be held liable directly to the sublessor, Article 1651 of the Civil Code provides an exception. The lessor may bring an action directly against the sublessee if they do not use and preserve the leased property in accordance with the agreement or the nature of the property.

• Rent Obligations: Additionally, the sublessee is subsidiarily liable to the lessor for any rent due from the lessee. However, this liability is limited to the amount of rent owed by the sublessee according to the terms of the sublease at the time of the lessor’s extra-judicial demand.

In summary, the sublessee has both direct liability to the lessor for property-related matters and subsidiary liability for rent obligations.

Source: Ziggurat Real Estate Corp.

A look at the differences between Airbnb and Vrbo

Vacation rentals come in all layouts and sizes. But if you plan to book one, there’s a good chance you’ll do it on Airbnb or Vrbo. The two platforms are among the most popular options for travelers looking for lodging.

Madeline List, a senior research analyst at Phocuswright who has studied the short-term rental industry, said there is “a lot of cross-listing” so users may find the same rental on multiple platforms.

“So there is definitely some overlap between the two platforms,” she said. However, while they have similarities, there are some differences that may help prospective guests decide which is right for their trip.

What sets Airbnb apart?

For starters, it has more listings. “Airbnb is huge in the space, and it’s certainly dominant,” List said. Airbnb had over 7.7 million listings in its 2024 spring update, as compared with more than 2 million on Vrbo.

The platform boasts greater brand awareness, too. Phocuswright’s U.S. Short-Term Rental Report 2021 – its most recent that measured that metric – found that 78% of short-term rental users surveyed were aware of Airbnb as offering that type of accommodation, while 50% named Vrbo.

(Phocuswright surveyed adult consumers in the U.S. with internet access who had traveled overnight and stayed in a paid short-term rental for leisure within the previous two years, and got 983 qualified responses).

List noted, however, that the numbers may have shifted since and Vrbo has done a “push for more brand recognition.” She added that Airbnb “has also done a lot of really strong work trying to push properties that feel very unique and that feel like very differentiated experiences.”

The company recently launched its Icons category – including the clock room at the Musée d’Orsay and a replica of Carl Fredricksen’s house from Disney and Pixar’s “Up” – and has other listings ranging from houseboats to yurts.

“We believe Airbnb offers more unique places to stay and unforgettable experiences than any other travel platform,” Airbnb’s chief business officer Dave Stephenson said in an email.

“Whatever your travel budget or ideal getaway, whether you’re traveling solo or with a group, there are Airbnb listings with great amenities that can provide you with a magical time almost anywhere in the world.”

What sets Vrbo apart?

Vrbo may have fewer listings, but it had an established presence even before Airbnb existed. Expedia Group acquired the platform in 2015 – then known as VRBO – as part of HomeAway.

VRBO rebranded to Vrbo in 2019, before the company retired HomeAway in the U.S. the following year. “Vrbo pioneered the vacation rental category nearly 30 years ago and has remained dedicated to providing travelers with consistent and reliable vacation rentals,” Melanie Fish, vice president of Global PR for Expedia Group Brands, said in an email.

“It’s not about spaceships or a celebrity’s garage – just real, fully functioning homes meant to be lived in and enjoyed together with family and friends.” While Airbnb customers can rent a room in someone else’s home, Vrbo offers only private rentals. That way, Fish said, “guests always get the whole place to themselves and never share the space with a host.”

Vrbo guests can also participate in Expedia Group’s One Key rewards program, allowing them to earn OneKey- Cash they can use on the site, or Expedia. com and Hotels.com. The platform also shows total prices including fees by default (hidden charges have been a source of frustration for many travelers).

Airbnb users must use a toggle to turn on the total price display. Vrbo has also received 2,934 Better Business Bureau complaints in the past three years, while Airbnb has received 7,580.

Does Airbnb or Vrbo cost more?

Hosts set listing prices, List said, and those can vary. “It might be slightly different across sites for all sorts of technical reasons, like the types of commissions and fees they pay to the different booking sites or the types of dynamic pricing tools or fee structures that they’re able to set on the back end,” she noted.

If one platform allows them to add a certain fee and another doesn’t have that capability, the host may adjust the pricing to compensate. “The best way to save money on booking fees is by booking directly with (a rental) operator, but for various reasons that either might not be an option in certain destinations – not everyone has a direct booking site – or it might not be something people feel comfortable with because there’s certainly more purchase security when you book through these centralized sites like Airbnb and Vrbo,” List added.

Despite their differences, they have plenty in common, too (both offer 24/7 customer support, for instance). “The (user experience) certainly has a lot of similarities to it,” List said. 

Source: USA Today