Cost pressures build on office landlords — CBRE

OFFICE LANDLORDS may find it difficult to continue absorbing occupancy-related costs and extending concessions to tenants as borrowing costs, inflation, and energy prices rise, according to CBRE Philippines, citing results of a survey of developers.

“They can’t hold on to this forever with rising borrowing costs and also pressure from inflation and energy costs, especially if we’re going to see this crisis kind of be prolonged and stretched out,” Alec Saubier, associate director of office leasing at CBRE Philippines, said during a briefing on Monday. “So, in essence, they can’t hold on forever.”

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) raised the target reverse repurchase rate by 25 basis points to 4.5% at its policy meeting last week, effectively ending an easing cycle.

The BSP’s rate increase was based on expectations that oil prices would remain elevated in the near term, with spot prices near $100 per barrel, while inflation risks persist. In March, headline inflation accelerated to 4.1%, exceeding the central bank’s forecast range of 3.1% to 3.9% and breaching its 2% to 4% target band.

“Six out of the seven major developers that we interviewed or ran the survey said that they will hold on to this, try not to move CUSA (common use service area) rates in accommodation to their tenants in the market,” said Zeth Michael Soria, director for tenant representation at CBRE Philippines.

However, he said this stance has begun to shift following recent increases in power rates.

“But just last week, when the BSP rates hiked, the sentiment kind of changed,” he said.

The firm said office vacancy stood at 19.5%, equivalent to nearly 1.80 million square meters, with 56% consisting of vacated stock, indicating continued pressure on landlords to retain tenants. The remaining 44% consists of unleased space.

Mr. Saubier said landlords continue to prioritize tenant retention, noting that “occupancy is king. Cash is king. So, whatever they can do to retain tenants, we’re still seeing that behavior from the landlords.”

This has resulted in rent concessions, with “a 9% average reduction from last year’s rent and an overall 12% reduction from the first offer,” he said.

On the demand side, Mr. Saubier said occupiers are focusing on overall costs, noting that “decisions should be anchored on total occupancy costs and not headline rent.”

He added that workforce considerations remain critical, saying “workforce geography will be crucial and rent arbitrage will not have any value if there is attrition or there is no labor in that particular market.”

Mr. Saubier also said tenants are taking advantage of current conditions, noting that “a lot of occupiers will try to take advantage of current climate, current market conditions… try to lock in favorable terms now.”

Currently, absorption pace ranges from 95,000 to 100,000 square meters, while CBRE said the ideal average pace should be between 200,000 and 300,000 square meters.

Metro Manila’s vacated spaces stand at 1.01 million square meters, though this does not yet indicate a return to pre-pandemic vacancy levels, according to CBRE.

In the first quarter, the absorption rate was recorded at 91.21%, slightly lower than 91.67% in the same period last year. The most recent peak was in 2024, when absorption reached 118.9%. — Juliana Chloe A. Gonzales