Recent data from Colliers Phils. show that office transactions in Metro Manila continue to recover, up 37% year-on-year (y-y) in gross leasable area (GLA) in 2023, however cancellations remain high (up 15% y-y to 582k sqm) resulting in vacancy rates rising to 19.6% vs. 18.8% in 2022. <\/p>\n\n\n\n
The risk that the already elevated vacancy rate could even go higher remains with the new push to ban POGOs. Our base case vacancy rate is now at 19.9% for 2024 but could increase to 23.9% if all of the remaining POGOs are shut down.<\/p>\n\n\n\n
Our View: <\/strong>Our estimates show that it will take 7.4 years to absorb the unlet space in the office market. Thus, rental rate growth should be limited to only 2% this year (vs. 7-9% in 2010-19). We are lukewarm towards the office landlords and office REITs and would prefer developers that give us exposure to malls and recovery in residential segment, such as ALI and RLC.<\/p>\n\n\n\n We prefer ALI as a proxy for the recovery in the residential segment of the property market while RLC is seen as a top value pick with widest valuation gap vs. peers. <\/p>\n\n\n\n The return-to-office mandate among most local firms had limited impact in terms of reducing the overall vacancy rate in the office segment. On top of the risk from the total POGO pullout, the shift to hybrid work arrangements (including the BPO sector) could only add to the segment\u2019s vacancy woes.<\/p>\n\n\n\n