Analysts see short-term dip in office demand on WFH shift

WORK-FROM-HOME (WFH)arrangements driven by rising fuel costs may dampen office take-up in the short term, but property consultants expect demand to remain broadly stable and vacancy pressures to stay manageable as the market continues to recover.

“While rising fuel costs and geopolitical tensions may prompt some companies to temporarily revisit work-from-home arrangements, we do not expect this to materially reverse the broader return-to-office (RTO) trajectory,” Joe Curran, chief executive officer of Savills Philippines, told BusinessWorld in an e-mailed reply to questions on Friday last week.

He said that most multinational firms and information technology and business process management (IT-BPM) occupiers continue to operate under structured hybrid models, with clear in-office requirements driven by productivity, collaboration, and client compliance.

“Any shift toward remote work in the near term is likely to be temporary until the current crisis subsides,” he added.

Kath Ryne A. Taburada, research manager for office services — tenant representation at Colliers Philippines, said office demand may soften in the short term amid uncertainty from the Middle East conflict.

“We are already seeing some companies delay or pause office decisions as they reassess their near-term business outlook. The wider use of WFH arrangements, largely driven by transportation challenges, could also weigh on office take up,” she said in a separate e-mail.

Mr. Curran said leasing activity is expected to remain steady despite near-term adjustments in workplace strategies, with firms continuing to expand and optimize their office footprints.

“In terms of office demand, leasing activity is expected to remain steady in the coming months, supported by ongoing expansions from traditional firms and sustained demand from the IT-BPM sector. External shocks such as fuel price volatility tend to influence workplace policies at the margin, but rarely lead to a meaningful reduction in overall space requirements. Instead, we are seeing companies focus more on optimizing location, prioritizing accessibility, proximity to talent, and cost efficiency, rather than reducing their footprint outright,” he said.

He added that the office market is showing early signs of recovery, with vacancy rates expected to gradually stabilize as demand improves, particularly in core central business districts (CBDs).

“Regarding vacancy, we anticipate gradual stabilization over the course of the year. While elevated supply in certain submarkets will continue to keep vacancy rates relatively high in the near term, improving absorption, particularly in core CBDs, such as Bonifacio Global City (BGC), should help ease overall pressure. The market remains tenant favorable, but early signs of recovery are emerging as demand normalizes and previously vacated spaces are reabsorbed,” Mr. Curran said.

“Overall, the office sector remains resilient. The current environment may accelerate workplace evolution, but it reinforces the role of the office as a critical component of long-term business strategy,” he added.

Ms. Taburada said companies are taking a cautious stance in the near term, prioritizing flexibility and employee welfare as they navigate uncertainty linked to geopolitical tensions and rising transport costs.

“Many firms are prioritizing employee welfare and retention while ensuring business continuity, and WFH provides flexibility during this period of disruption. As a result, some occupiers may take more time before committing to new or expanded office space,” she said.

She added that government measures, including temporary WFH arrangements for registered business enterprises (RBEs) registered with investment promotion agencies (IPAs), have provided clarity for firms adjusting their operations.

“On a positive note, the government has acted quickly by putting in place clear WFH guidelines, such as the temporary 90% WFH arrangement for IPA-registered RBEs. These measures give businesses immediate clarity on how to operate, allowing them to adjust work arrangements quickly even if longer-term office decisions are deferred,” she said.

Despite short-term headwinds, Ms. Taburada said demand from key occupiers such as third-party outsourcers (3POs) and global capability centers (GCCs) is expected to remain intact.

“Looking beyond the near term, we expect demand from 3POs and GCCs to stabilize, supported by the sector’s generally positive outlook. These occupiers tend to take a longer-term view, and their expansion plans remain intact despite short-term disruptions,” she said.

She noted that the full impact of the global oil crisis has yet to be reflected in first-quarter data but said vacancy risks remain contained due to a more disciplined supply pipeline.

“The full impact is still unclear as our first-quarter data does not yet capture the effects of the global oil crisis. In a worst-case scenario — similar to the early stages of the coronavirus disease 2019 (COVID-19) pandemic — office vacancy rates could rise and potentially go beyond 20% this year. That said, the market today is in a better position compared to the COVID-19 period. Office supply is much more controlled, with around 500,000 square meters (sq.m.) to come online this year and an average of about 300,000 sq.m. annually over the next four years,” she said.

“This is significantly lower than the 900,000 to 1 million sq.m. delivered during the Philippine offshore gaming operator (POGO) years, as well as the 400,000 to 700,000 sq.m. added each year right after the COVID-19 pandemic hit. This tighter supply pipeline should help cushion the market and limit the rise in vacancy rates, even if demand softens in the short term,” she added. — Juliana Chloe A. Gonzales